How to Find Your BTL Investment Area
Once you have decided to invest in a buy-to-let (BTL) property, the next decision to be made is where you should make that investment. There are thousands of places in the UK you could buy, so narrowing it down to just one can be a bit difficult.
Most people look for capital growth – looking for areas where property prices are likely to rise so that your return is made from a capital gain. However, if you’re looking at property investment with a long-term view, prices will go up and down and follow a roughly 18-year cycle, making it impossible to predict exactly when you’d make the best return from selling your property.
A much more reliable way to make good returns on BTL properties, is to look for investments which will make you an income to give you financial freedom. So, you need to find an area where there is a high demand for rental properties with high rents, but the purchase prices are relatively low.
For example, in Cambridge, a 2-bedroom terraced house could cost around £450k and the rent could be around £1.5k per month. However, in Liverpool a 2-bedroom terraced house could cost around £80k and the rent could be around £500 per month. The rent in Cambridge would be 3 times higher than the Liverpool rent but the cost to buy would be nearly 6 times higher!
A lot of areas where this occurs have high property yields (if you’re not familiar with the term, yield is yearly rental income divided by the property value). It gives an idea of where you get a good amount of rent for the property value….but, if you invest in an area with high yield and the property values drop, the yield will go up but the cash which lands in your bank account each month won’t change! For this reason, yield can be a helpful tool to look at, but it is not what I base my investment area on...
Instead, I use return on investment.
A return on Investment (ROI) calculation is your yearly profit (income minus costs associated with the property such as agent fees and refurbishment costs) divided by the money currently invested, multiplied by 100 to get a percentage. ROI is what will really tell you whether your investment is a good one because you can compare the ROI to any other assets (gold, stocks, shares etc.) and see whether a property will make you a better return.
Step 1 – Online Research
Pick 10 towns to investigate.
The towns in the UK with the best yield tend to be in the North of England and South Wales, but you could also look at where you live currently and work out from there. Travel time for you to visit the towns also needs to be taken into account so that you can be realistic in planning how often you will be able to visit the area (with the aim to visit at least once/month in the early days).
It's not wise to pick an entire city as they’re too big for you to get to know in enough detail. Instead, you could split a city into postcode areas, such as CB1, CB2 etc. You also don’t want to pick a small hamlet or village either as it would be unlikely to have enough houses coming on the market that are suitable projects (i.e. require a refurbishment) in order for you to make good returns. Commuter towns on the outside of cities tend to be good ones to pick, with a rough population of around 50,000 people.
Once you’ve picked your 10 towns, then you can begin some online research. Use a site like Rightmove or Zoopla to look up the prices of 2 and 3 bedroom properties that look the right style to rent, such as a terraced house or semi-detached. Look at the price difference between similar styles of houses that are ready to rent and those that need some refurbishment work doing to them. You’re aiming for a gap in value of between £20-50k in order to make a good return on the refurbishment.
Next, take a look at how fast the market is moving in that area. To do this on Rightmove, tick the “Include Sold STC” box and write that number down, then untick the “Include Sold STC” box and calculate the percentage of houses which are on the market without having sales agreed on them to see if it is high or low (divide the number of houses without including Sold STC by the total including Sold STC and then multiple by 100 to make it a percentage). If it’s a low percentage then property sales are moving quickly in that area, if it’s high then the market is likely to be moving more slowly in that area.
Repeat this process to see how fast the rental market is moving by checking and unchecking the “Let Agreed” box. Repeat this a few times over a few weeks to get an overall picture of the area.
During this research, you can also start to get a feel for the average property price and the average rental price as you’re building up your picture of the market in the area.
Step 2 – Local Research
Narrow your areas down to the 5 that have good overall results for the metrics you used in Step 1 (e.g. travel time, purchase price, refurbishment potential to add value, how fast the market is moving…etc.). Narrowing down your selection isn’t an exact science, so go with the numbers, but don’t be afraid to go with your gut as well!
Then, it’s time to start talking to the local agents. The internet can only give you so much information, so by talking to the letting and estate agents in the area you can ask their opinions and gain a much more detailed view on the local market trends. Good questions to ask include things like what types of property are most in demand for rental? Do they have any properties which have been sticking on the market for a while? Which streets within the area are good or bad for rental?
Try to speak to at least 3 estate and 3 letting agents in each area so that you get a few different opinions and can start to identify the general trends. Having meaningful conversations with agents will make a huge difference to how well you understand each potential investment area, so try to get them talking!
Step 3 – Area Visits
It’s time to narrow your 5 potential areas down to 2.
Think back to the conversations you’ve had with agents in each area – were they generally positive conversations? Did it sound as though there might be plenty of suitable properties for you to view? Does the area have a good rental demand?
Based on your initial metrics in Step 1 and your more detailed local research in Step 2, whittle your areas down to just 2.
Then physically go and visit those areas. Now of course as a keen prospective property investor, you’ll be wanting to view some properties – it would be crazy not to – but make sure you also set aside plenty of time to talk to local people.
Ideally, book in meetings with estate and letting agents face to face (even if you have already talked to them over the phone…you are trying to build great relationships!), meet with builders and maybe even local surveyors. All of these people will know invaluable information about demand, trends and redevelopments in the area (e.g. new retail parks being build et.), and they will almost certainly know more than the agent showing you round on a property viewing.
Step 4 – Get to Know Your Area!
After all of your research and visits, you should be able to focus on just one area.
Now it is time to get to know that area as well as possible. Visit at least once/month and book in property viewings (no more than 8 in a day otherwise you won’t leave time for people!!) and prioritise visiting estate and letting agents.
Building these relationships will be hugely beneficial to you as you want them to remember you so that they pass on helpful information and potential properties. Plus, good letting agents can also lead you to other good contacts, such as builders.
The more time you spend speaking to people and building relationships, the more you will understand the nuances of your area – such as which streets are great for rental and which streets have a bad reputation (for whatever reason!). This sort of insider knowledge can make all the difference between great investments in a great area and investments which are more trouble than they are worth!
Hopefully this blog post has been helpful. If you’d like to find out more about discovering great property investments, I cover all of this and more in my online coaching course Buy-to-Let with Infinite Returns which is opening for enrolment in January 2021. If you’d like to join the waitlist and get an exclusive £50 off, sign up here: https://academy.nalacoaching.com/BTLwaitlist