When investing in property, one of the main measurements of success should be how much better the property you have bought has performed versus national and local averages of someone that just bought a property for a home.
Successful buy to let investors should be able to:-
1. Buy a property at less than people pay for similar properties locally
2. Ensure the property delivers positive cashflow throughout the investment period
3. Watch their property grow in value at a better rate than similar properties
For a property to meet these targets, it’s essential that investors research the area incredibly carefully and understanding what areas and properties are in constant high demand and short supply is critical. It will however, take a lot of time and effort! But hopefully the information below and the case study on Peterborough will help give you an idea of where and what information to look for.
It’s easy to look at local property prices, rental demand and yields in today’s market, but when you are investing in buy to let you are likely to be selling the property some time in the future, possibly 10 or 20 years in advance, and property supply, demand, prices and yield during this time can change beyond all recognition.
So, where do you get this information from? How do you analyse an area?
Analysis on Peterborough
To analyse the Peterborough market, you need to understand the basic investment figures, such as average property prices in different areas, what properties were in high demand versus supply and what properties are always required for rental income.
To source this data isn’t difficult as you can find average property prices from the Land Registry. You can then find data on how different areas around Peterborough are performing from sites such as Hometrack, and one of the best places to start at a local level if you are looking to make money from buy to let, is to identify and meet with the top local letting agent in the area.
Current Information for the Peterborough Area
The key figures to look for when investing are the property prices and rental income that can be generated. Once you have this ‘average data’ then you can analyse the property prices by flats, semis and detached and then by one, two, three and four plus bed properties.
Property Price Information (Source Land Registry Dec 09)
City of Peterborough £111,661 -6.3%
Cambridgeshire £172,101 -0.5%
Rutland £205,608 -4.8%
England/Wales £161,783 +2.5%
Property Price Breakdown by House Type
City of Peterborough; £71,717/£81,701/£111,392/£207,381
If you are buying to let, then you need rental price information. When you are looking for this, it’s important to only talk to letting specialists and ideally a company that looks after the whole area, rather than just concentrates on one or two parts, such as the city centre, as they won’t be able to give you an independent overview of the whole market.
For this study, we have used figures provided by Belvoir Peterborough, which has been in the area for over 10 years and only carries out property lettings.
Rental prices in Peterborough have fallen on average by 5% in the last 12 months (in line with national figures). The average rent of £550 versus the average property price of £108,000 still gives an average gross yield of nearly 6%.
Mainstream rental properties offer the following income (per month):-
1 Bed Flat/2 Bed Flat/2 Bed House/3 Bed House/4 Bed House
Source: Belvoir Lettings, Peterborough
Room rents attract £45 – £100 depending on area, quality of property and room size.
With this data, you have a good idea that this is an area you could afford to invest in and one that offers potential yields that would deliver a positive cashflow.
Economy, Employment and Average Earnings
Once you know that a property deal stacks up, you then need to know a little bit about how robust the economy is and what type of people are employed in the area as well as how much they earn – as this will influence whether people are likely to rent or buy and what they can afford.
As far as the economy is concerned, The Royal Mail’s new business barometer survey shows Peterborough to have the fastest-growing population of businesses in the UK in 2006, and in 2008, Peterborough was ranked 14 out of the top 20 towns, based on active business growth.
The spread of work within Peterborough also appears quite healthy, with the majority of people in the service sector and around 26% in the public sector, which although an important sector, shows that Peterborough is mainly business led and will therefore be cushioned from the pending ‘downsizing’ of public services in 2010 and beyond.
Peterborough is home to household names such as: Anglian Water; British Sugar; and Ikea and is trying to attract ‘future proof’ industries such as environmental, food and drink and precision engineering.
This information reassures you that the area is definitely ‘on the up’ and there is an opportunity, for the right investor, to buy properties in areas that are likely to see a growth in demand.
The Future for Peterborough
Once you have an idea of what the current economy and property performance is, you need to find out what the future plans are for the Peterborough area. This will help you identify which areas within Peterborough are likely to be the places with the property types that would be in high demand, but supply is restricted now and in the future.
This information is typically easy to find as each area across the UK has their own ‘future plans’ that are published on an annual basis and each local authority has a department called ‘inward investment’ that has information to help attract new business to the area, which is helpful to property investors.
For Peterborough, the future of the city and surrounding areas is managed by ‘Opportunity Peterborough’, which has its own website, and highlights all the key targets for the area’s growth.
From this resource, you can find the following:-
1. In 2004, Peterborough started to expand once more following its designation as part of the ‘London-Stansted-Cambridge-Peterborough Growth Corridor’.
2. Peterborough is benefiting from one billion pounds of regeneration over 15 years to 2021.
3. Major redevelopment of the City Centre is being planned, including a new shopping centre in North Westgate.
4. A new university is being created: the Anglia Ruskin University Campus.
5. Peterborough is being developed as one of the UK’s top four greenest cities
The next step is to look at what’s expected to happen with population growth and coupled with this, what planned increases there are in the number of properties for people to live in. With this information, you’re looking out for where demand might grow for homes and disproportionally increase in price over time because supply cannot grow at the same rate.
For example, the new Anglia Ruskin University might suggest a huge growth in student demand for rents. However, if this is already being catered for by institutional investors building big blocks of student accommodation, then investing in student accommodation near the University might not be the best route to successful returns. A much better investment route might be areas and property that staff who work at the University, such as lecturers, would be interested in buying and renting in.
Once you have an idea of the changes that influence the future demand and supply of property, you then need to look at what the population, house supply and job growth prospects are for the different areas within Peterborough.
This information is normally supplied by various resources. In Peterborough’s case, Opportunity Peterborough and the local authority had many reports which researched these statistics. The most useful resources which many local authorities produce are:-
1. The local development plan
2. The local housing assessment strategy
For the Peterborough area, the information suggests the potential growth was pretty impressive versus other areas researched. For example, the information suggests that over 20,000 new jobs will be created following the regeneration of the area. This is useful information as more jobs are likely to result in an increase in population.
Further research shows that overall, Peterborough’s population is expected to grow from the current 164,000 by 11.6% to 181,800 in 2016. Much of this population growth is expected to be in the city centre and areas such as the Hamptons created to the south of Peterborough.
However, this information only shows me that demand for housing will increase. It is not enough in its own right though to make an investment decision as you need to better understand what the plans are to increase the housing stock to cope. Having visited the area, it is evident that Peterborough has already added a lot of new homes to the area including a whole new suburb ‘Hampton Vale’ and has the potential space to add a lot more.
More research from the Peterborough Housing Needs and Demands Survey shows there are currently 71,500 households within Peterborough. This is expected to grow to 83,000 by 2012 and to 96,500 by 2021, adding 25,000 new households to the region.
So in summary, we now know:-
1. What the plans are for local area development, eg the University, city centre redevelopment
2. Where and by whom the demand for property comes from for now and in the future
3. What, how many and where the supply will grow via the additional homes that are going to be built
Armed with all this information you can now start looking at different locations and identify property types that you think will grow in value more than the national and local averages. So you next research task is to work out where these properties are likely to be built and which areas and property types are likely to benefit from the population growth, while having a restricted supply which will drive up both rental income and property prices.
Where and What to Invest In
To do this, use the local authority website (Peterborough.gov.uk) to find out about the various wards within Peterborough such as Bretton, Peterborough Central and Hampton Vale. At this stage, do a little on-line research about these areas and then spend a good day driving from area to area, picking up the local property papers, chatting to the local agents, even the locals and then trying to identify the best streets and property types to purchase.
From this level of research, you should be able to conclude that some of the better potential areas appear to be in Peterborough City Centre, Bretton and the Hamptons and that the types of properties you should be looking at are, depending on which area: two bed terraces, three bed townhouses and well located one bedroom properties.