* This post was inspired by our Pure Property Podcast on the top tips for analysing deals. Listen Here.
In real estate investment, curiosity pays. Say you’ve found yourself a great-looking property and are eager to put an offer in as quickly as possible – well, hold your horses just a second there, cowboy.
Put the breaks on and take some time to consolidate everything you know about the property and the investment deal itself before you jump into even the most attractive-looking property.
In this article, we will be taking you through our key tips when reviewing real estate deals. These are the five overarching principles that we want investors to be thinking about when they are assessing any investment property.
Analysing Deals: Location
The first factor to consider is the general location of the property, with a focus on the investment fundamentals that present nearby and will have an impact on the rentability of the property.
Transport
How well is the property connected for tenants? Google Maps is a great starting point for this. Have a look at what transport systems are in and around the local area. Make sure the location of the property is nice and convenient for tenants. Is it under a 10-minute walk to the local bus stop or train station, for example?
Employment
Which major corporate employers are nearby for prospective job opportunities? Is there a healthy mix of job prospects in a variety of sectors? A place to live often means a place to work, so employment opportunities will be crucial for offering tenants more of what they need.
Education
Are any major universities or top-rated schools present in the area? The first is essential if you will be renting to students and new graduates. The second will be important if you are trying to attract families to stay in your property for the long haul. Access to educational facilities will drive tenant demand and create a real atmosphere in the city.
Regeneration
How much local investment is going into the city? You can check out the council’s website to learn about any government initiatives that are taking place. Both private and public investment will naturally drive local property values up in the long term, which is something we want to consider.
Social Events
This is a particularly important factor if you are looking at a Short-Term Let strategy. Is the location a suitable hive of activity to attract tenants?
What facilities are available for entertainment, nightlife, attractions or beauty spots? Perhaps there are annual social events that draw a crowd. Whatever the lure, make sure people are likely to have a sustained interest in coming to minimise void periods and maximise your potential rental income.
Market Performance
How is the property market in the local area expected to perform over the next five years? To answer this, look at a variety of websites and companies such as JLL, Saville’s, Hometrack, Zoopla and Rightmove.
By doing so you will uncover an excellent cross-section of information, such the area’s forecast capital growth and its appreciation rates. You can also get a good idea of what the average property and rental values are for the area, which in turn will enable you to make an informed decision.
Analysing Deals: Financials
The financial aspect is one of the most important factors to consider when analysing an investment deal. Paying close attention to the financials puts you in a strong position to determine the overall profitability of the venture. Yields that are too low put your business at risk and delay future investments while you spend more time building up capital.
Below are the three main financial points to focus on when analysing deals.
Gross Yield
Calculated in percentage, this is how much income will be generated by the property before any outgoings. It is considered to be a quick and easy way of looking at the general expected returns of your project.
Net Yield
This is the final percentage profit after all costs and expenses are taken into consideration. Costs may include such things as service charge, ground rent, management fee and mortgage payment
ROI (Return on Investment)
This is also known as Return on Capital and to calculate this, you will need to add up all of the money that you have put into the deal in order to find out the total cost of the deal. This will factor in other costs associate with your purchase, such as your solicitor’s fees, stamp duty, furniture, and refurbishment costs.
Analysing Deals: Property Type
The next factor to consider is the type of property you are choosing to invest in. The look of the property, its floor plan, aspects, amenities and the fixtures and furnishings that come with the property will all affect its rental price. They will also affect the capital growth prospects should you decide to sell in the future. It is important to make sure that the property’s rentability will be suitable for your overall Return on Investment goals.
Analysing Deals: Demand & Market Comparables
When investing in a buy-to-let, you need to be sure there is sufficient rental demand for the type of property you are choosing to buy. If you are thinking about buying a commuter belt property, consider how well connected the area is for essential amenities like schools, hospitals and shops. If you are keen to buy an apartment for working professionals, research the area’s job prospects and its proximity to good educational facilities. Likewise, student accommodation properties will need to be close to the university and ideally offer communal facilities such as on-site gym and study spaces to make sure
You will also need to thoroughly research market comparables. Not only will this give you a good guide to the amount of rent you can expect from your property, but it can also tip you off to whether or not the market is already saturated with properties like yours. In a time of nationwide undersupply, it is very rare that saturation will make a buy-to-let investment completely unworkable, but we are always looking to minimise void periods where possible.
Look on property portals such as Rightmove and Zoopla for data on demand and comparables. Searching for properties with similar specifications as your own within in a 1/4 mile radius from your chosen location will give you the most relevant results. Make sure to compare the amount of those properties to let vs the number of properties let within the last 6 months to see how easy it might be to rent your own property out.
Final Word from Track Capital
In conclusion, you will need to explore multiple avenues to make sure that a property fits in with your strategy and overall business objective. If you are unsure what your strategy is or should be, click here to explore the various options for BTL business planning.
Track Capital is here to help you decide your next move. If you would like to find out more about analysing property deals, we have access to the most current market data nationwide and a huge database of on and off-market deals that have been specially selected to maximise profitability at excellent prices.
