How to buy an investment property out of town

How to buy an investment property out of town

You may love where you live, but sometimes your hometown isn’t the best place to purchase an investment property. Buying a property isn’t a purchase that is taken lightly, and if you plan to make it your business, it is imperative that you are making the right choice.

It’s all about the research

You may know all of the areas in your home town like the back of your hand, but when it comes to buying out of town, it all comes down to the research.

There are two processes that can be adopted:

1. Area first. Do your research and find an area that you like first, then talk to your letting agent to discuss the majority tenant profile and the type of properties that are desirable in the area.

2. Desirable tenant profile first – You may already have a type of tenant in mind and if that is the case, look at areas where there is an abundance of your desired tenant. For example, if you plan to buy a house for your next investment, with the aim to attract families, look at areas that meet your criteria.

Regardless of which process you are planning on using, the following tips will help you feel confident in your out of town investment:

Speak to your local agent. Your local agent will be able to help you get a feel of the town and will give you an idea of exciting investments, developments, and upcoming commuter links. They will also be able to help you identify the majority tenant profile in the town, which is crucial to understand. The town may be full of working professionals or families, so you may have to change your planned investment property to suit tenant demand. You may also find that the majority of tenants in the area are in receipt of benefits or are unemployed. If this is the case, you will need to find out the local council allowance, to ensure that the rent allowance will cover the rent that you are expecting for your property. Talk to your agent to see how many local properties they manage, and if you’ve got a property in mind, find out if they’ve let a similar property before. This is particularly crucial, if you are looking at a niche property.

Think about the type of property that is in demand in the local area. Once you have an idea of the majority tenant profile in the area, you will be able to work out the type of properties that are in demand, whether this be modern sleek flats for working professionals, or houses with gardens to appeal to families. Your local agent will be able to offer help and assistance with this.

Assess what you want from your investment property. If you are looking to make a capital return, look at how the prices have trended in the area, to work out if it is a viable option. If you are looking at investing in a downturn area where it doesn’t seem obvious that you will get a big capital return, instead look at whether you will be able to receive a consistent monthly return or high yield.

Consider the wave/ ripple effect. It is thought that some hotspot areas benefit from the wave effect, where the surrounding neighbourhoods become popular as priced out tenants look for the next best thing. But although investorscan benefit from the ripples of popularity, it is important to consider the length of time it may take to get a good return, this could be relatively short term, but similarly it could take years.

Look at the pricing trends in the area. With the help of your local agent and identify whether the local market is progressive/ regressive, or whether there are any upcoming hotspots. Areas with investment in communal areas, parks etc, new developments planned nearby, local regeneration plans, planned investment by local council and big employers moving in, points to an upturn area. But if it is evident that none of the above is happening in the area or there is a decline in standards, it suggests that it may be a regressive area.

Think about the competition in niche markets. Don’t be fooled by student towns unless you have done your research! A lot of Universities are building their own accommodation purposely built for students, so unless you are confident that your property can compete, it may be advisable to consider alternative investments.

Look into licensing.  Buy-to-let properties in some towns may face compulsory selective licensing enforced by the local council. Check to see if the town enforces this, or has plans to do so in the future, as it will be an added cost that you will need to consider. If your property is likely to become a house in multiple occupation (HMO), ie: it is rented out by at least three people who are not from one ‘household’ but the occupants share facilities, you will also require a licence. Contact the local council to confirm all of the current licensing costs.

Contact the local council. As well as getting in touch to find out about local licensing, it is also advisable to see if the council is doing any grants for improvement in the area. This could reveal some positive plans for the local area and residents.

Visit the area for yourself. Make sure that you see and experience the property and area yourself and don’t rely on third party information. It is wise to visit the area at different times of the day, and different days of the week, to get a representative view of what the area is really like. Take note of how noisy and busy the area is on different visits, and take note of the nearby parking too. You want to make sure that your property will consistently attract tenants, in order to provide you with a reliable monthly return, so if you can envision any problems arising in the area at this stage, it should ring warning bells. It is important to consider the appearances too. If the road and your property looks nice and quiet, it is bound to attract demand for your property.

Think about the future potential. If you’re stuck between a few out of town areas to invest, think about which area will offer the best future prospects. You are looking to invest in a property for the long term, so if you hear that locals are planning on moving out of the town for better commuter links elsewhere, keep this in mind. Similarly if you hear of proposals for future regeneration plans in the area, it points to exciting future prospects, particularly if your main goal is capital return!

For more information on buy-to-let look to our recent articles,