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Don’t judge a Buy-to-Let location by its cover
March 20, 2018Article by Paul Avery
Following your emotions can be an easy trap to fall into when it comes to property investing. Buying a rental unit involves all the same steps as buying your home – but the purpose it serves could hardly be more different. It’s about making money, not making a home or making a statement. That’s why landlords don’t decorate flats with their favourite blood-red wallpaper, tribal artworks, and bedroom swings. Buy-to-let investing is a numbers game, and that calls for strict functionality and mass appeal.
Approaching an investment location involves supressing all the same emotional reflexes as when viewing the living space itself. It is easy to scan the map and dismiss cities or areas that you may never even have visited as unpleasant, or to favour less deserving places out of pure familiarity or nostalgia.
There are certainly tangible benefits to buying a buy-to-let somewhere you know well, but these days investors need to keep an open mind if they are to achieve the best returns available. We might even go so far as to say that it is often precisely the places that don’t conjure the most positive associations that harbour the best opportunities.
It pays to look beneath the radar
For example, when we launched our Sandford development in Belfast a few years ago, the idea came as a surprise to investors elsewhere in the UK whose primary association with the city is its troubled past. In fact, it is home to one of the most dynamic regional economies in the country, has become a tourist honeypot, and hosts a lively rental market of young professionals to boot. Since then, those properties have appreciated by 73% and investors are on track for a return of 37%.
That was a classic case of a place that is absolutely deserving of investment but is starved of new construction because its image hasn’t caught up with the reality. The resulting undersupply is exactly the factor that made a good investment into a great one.
Renters generally don’t choose where to live based on their first impressions; they are drawn to employment opportunities, follow family links, and come to appreciate the pulse of a place. In order to serve those people, landlords must disregard knee-jerk responses and look deeper into the local economy, supply and demand, and what regeneration investment is taking place.
‘Shoreditch of the North’
Another great example of a town where misconceptions disguise a completely different reality is Halifax in Yorkshire. A rocky period in the eighties and vacant industrial buildings are still seen to symbolise a place that is in fact quietly zipping into the future. The entire centre of town has had a transformative facelift and injection of youthful cool, while major employers are moving into converted mill buildings and startups are holding coding competitions.
You wouldn’t know this, however, unless you had happened to visit or research the town (as we did for our Martins Mill development). However, in the last few weeks national newspapers have begun to cotton on with features about ‘the Shoreditch of the North’.
That comparison is apt. Twenty years ago London developers and investors steered clear of the shabby eastern neighbourhood. But those canny enough to watch for emerging changes and taken the plunge would have seen their capital appreciate by 340% (Zoopla). The rental yield on such a purchase wouldn’t be too shabby either.
The time for investment in trendy London neighbourhoods has past, but the time for open-minded and emotion-free investment decisions is still upon us.