What makes a truly great investment property in one of the most popular property markets in the UK? Of course, property investment depends on strategy, which varies from cash flow assets, equity or quick profit on turnaround. For the purposes of this discussion we’ll be addressing ‘buy and hold’ capital growth and buy-to-let rental yield – two common ways to make money as an investor – and what to consider in Brighton specifically.
When choosing the right investment property for you, the process should take these three key considerations into account:
- Your investment strategy for the property
- Where to buy and when
- Your target market
Capital growth vs. rental yield
Firstly, decide whether you want an investment that’s likely to have high capital growth or pay out a high yield gradually. There are plenty of factors which affect both sides of the market, notably supply and demand, but as a general rule, yield and capital growth are influenced by the following:
- Rental yield: Demographics, rental behaviours, property type, area.
- Capital growth: Regeneration, infrastructure, transport and future growth plans, property type, area.
Is it possible to have both?
We’re now seeing the distinct trade-off between a high-yield property for a low price and a high-capital growth home for a high asking price break down as supply and demand weighs heavily on the market.
There’s no reason why you can’t look for a property which offers a bit of both worlds, but there are a few distinct characteristics to be aware of. High capital growth property tends to be more expensive upfront with larger bills that eat into your yield. High yield, low-cost properties, on the other hand, tend to need some redevelopment and repairs, creating opportunity for capital growth potential.
Who you market to matters, with tenancy type very much influenced by rental behaviour. The National Landlords Association in 2014, for example, found that housing for retired families offered yields of 6.8%, which dropped down to 6.6% for student and 5.9% for young singles.
Yield is important, but there are other factors to consider. Investing in a Brighton property aimed at its huge student population may be a wise investment in terms of yield and demand, but high tenant turnover and constant maintenance makes it one of the most demanding choices for investors.
Property type partly decides what you’ll pay upon purchase and depreciation. Vast swathes of Brighton is lined with period Victorian, Edwardian and Georgian homes, but new builds now make up a larger share of the market. Each category has its pros and cons:
- Period property: Older properties tend to have less depreciation. Extra charm and character adds value, as does the superior floor space and sturdy structures that last the test of time. However, older properties require more attention and cost more to maintain and heat over the long term.
- New builds: Buyers are guaranteed modern safety standards and the latest appliances in a new home, with a market value that is less susceptible to shocks if situated within a bigger development. Having said that, new builds tend to lack the character and space found throughout a period home.
Do your market research
At the end of the day, you want to buy an investment property which you can sell quickly, either for profit or if your situation changes. Getting to know the local area is key to buying the right investment property. Ask the following:
- How scarce is land in the area? Lack of supply will inevitably push up prices.
- What’s the local market value? Research recent sales.
- What’s competition in the area like?
- How has rental yield performed over time?
- Is there enough industry and work nearby to sustain long-term growth?
In a property market like Brighton, investors are more likely to have guaranteed capital growth, as opposed to new development areas and towns undergoing regeneration. As we have discussed, despite policy and politics affecting the UK property market, attractive month-on-month capital growth and rental yields make Brighton a perennially popular market for investment.
What buyers want
Evidence suggests that today’s competitive marketplace is pushing buyers to think with their heads rather than their hearts. Surface aesthetics – design features and even open-plan living spaces, for example – are being replaced by more substantial property must-haves: a garden, parking and a private driveway, energy efficiency, central heating and insulation and area amenities.
These preferences are either costly to install or potentially impossible to add to a property once you buy, which is why thorough research is key once again. When in doubt, talk to a local estate agent who can provide invaluable insights and listings.
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