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Prepare your strategy

Whenever you consider purchasing properties for investment you should always first plan your strategy and get that fixed in your own mind. Flexibility is acceptable within the strategy framework but don’t wander too far off the path once you have selected it.

After all, this is an investment property you are considering and therefore must treat it as a business proposition to be taken seriously.

Capital Growth

Your strategy may be to purchase property for capital growth in which case you may be looking to buy property which is at the bottom of a downward trend in the property market, to buy from a distressed seller who needs to sell quickly or to buy a property in need of refurbishment or renovation. In each case you will have the opportunity to increase equity and capital values by renovating, by buying cheaply below market value or by waiting for an upturn in property values.

Capital growth also occurs naturally by a steady increase in the value of property over time. This growth in the equity you have in your investment properties may provide you with the opportunity to drawdown against the increased value of your properties and by increasing the mortgages within the parameters set by your lender. This will provide more capital with which to invest in additional properties.

Capital growth can occur quickly in an area which has become tired and distressed but is then lifted by redevelopment and an influx of buyers who are prepared to invest in their properties to lift their appearance and, hence, their value.

The introduction of new transport links, public or national facilities or industry can also act as the trigger to invoke spurts of capital growth in an area. In the UK such examples of this are the effect of the 2012 Olympic Games on the east end of London, the introduction of the high speed rail link from London to the new Eurostar terminus at Ashford in Kent which has boosted values all along the length of the line and finally, the impact of the M4 corridor as a technology centre which has boosted property values in areas such as Reading.

Rental Yields

Another strategy you may wish to pursue is that of rental yields where cash flow becomes more important than any capital growth. Many property investors insist that positive cash flow is far more important than capital growth to them. If properties for investment are not achieving positive cash flow then they are of no interest.

These investors will look first for properties which will be attractive to renters all day and every day. These will usually be in attractive areas of a town or city where they are close to transport links and public facilities, supermarkets, universities and so on. This will cause a consistent demand for rental property and will support high rents and reduce tenant turnover.

Thus such properties will provide a regular source of income to the investor and part of their strategy will be to build a portfolio of like properties, possibly in the same area, which will provide an income on which they can live comfortably. Under these circumstances, the investor is prepared to let capital growth occur naturally.

Capital Growth and Rental Yields

There will be other investors who will seek one of the holy grails of property investors, namely, the achievement of capital growth and positive rental yields from the same investment.

This can be achieved both in the UK and abroad but the purchasing criteria need to be precisely defined and adhered to closely to be successful.

The investor will look for a property which they can buy into at prices well below market value so that capital growth is built in automatically when the property is linked to comparables in the same locality. Also required to feed this strategy will be the location of the property and the facilities which are close by.

The property will need to be in an up-market area or one which is climbing fast towards that status. This will support renter demand and medium to high rents. Also required in the neighbourhood will be facilities such as cinemas, supermarkets, theatres, a variety of high-quality shops and close links to transport, both local and national.

Such properties and areas do exist but it becomes increasingly difficult to discover below market property prices in these areas. Sometimes the only way to achieve this is to buy off-plan from a developer who is keen to move units quickly to enable them to move on to the next development.

If you find such an opportunity, consider it carefully. If it stacks up everywhere then grab it quickly before others get there before you.