It's all about Supply and Demand

It's all about Supply and Demand
As with any business, one of the most important determining factors of your success will be in following the law of supply and demand. Some huge advantages for the landlord in the UK are as follows:   Major demand for good quality (and even low quality!) rental stock
  • House-building is not keeping up with demand
  • Land is limited as we live on an 'island'
  • Decent levels of funding available for BTL purchases
  So when you look at it, these are very good a reasons why purchasing property to let it is a good idea.  Of course, we are analysing only the law of supply and demand here and there are, of course, many other factors to take into account. Not only is it important to determine the overall law of supply and demand from a landlord’s perspective, but also the law as it relates to the micro-climate variations within the UK.  It is logical to think that whilst reason would have it that any property should be able to rent out, there will of course be regional, area-by-area and street-by-street nuances which will need to be considered before making your purchase.I have listed below the steps I take and those I recommend to my clients to take when doing initial area research and analysis on any new possible rental location.  These will help you to work out a ‘snapshot view' of the current supply and demand as it relates to the different areas you are considering.  The object of the exercise is to help you narrow down the options when you are looking at your first/next area to work with.  You can use this as fairly ‘global’ exercise (if looking at an entire region) or for a more detailed analysis of a particular town or city.Start a spreadsheet and produce the following...
  1. First of all, list the areas you are looking into on the left-hand side of the spreadsheet
  2. Next, create columns for 1 bed flats, 2 bed flats, 2 bed houses and 3 bed houses
  3. Following this, visit
  4. Start with putting in an area and looking for properties 'For Sale'
  5. Refine the criteria to: This area only | no min/max price | beds, min 1/max 1 | property type, flats | inc. SSTC/Under Offer
  6. See how many properties are on the market of a certain type (i.e. 1 bed flats) and include SSTC/Under Offer.  Put the number of properties available (minus retirement and shared ownership) in the column under the 1 bed flat heading
  7. Then un-tick the SSTC box and see how many properties remain.  Put this number in the cell next to the one before, still under the 1 bed flat heading.
  8. Add a calculation to the Spreadsheet to determine the ratio of properties on the market not SSTC vs. properties including SSTC (no. of properties not SSTC (e.g. 68) divided by no. of properties inc. SSTC (e.g. 223) and expressed as a percentage, e.g. 68 / 223 x 100 = 30%)
  9. Do this for each property type in each region (I research 1/2 bed flats and 2/3 bed houses)
  10. Repeat steps 3-6 for each area under Properties To Rent vs. Let Agreed.
  You will start to see a picture forming as to which areas have strong sales markets and which have strong rental markets (as a snapshot of the current market, of course.)From here, you can see which areas are currently providing a good ‘supply’ of houses for you to look at and which have the best ‘demand’ in terms of the amount of properties 'Let' as opposed to on the market. In my opinion, if you are looking for properties to hold for the long-term which produce decent monthly cash flow, you will be looking for areas with slower sales markets and faster rental markets.  Why slower sales?  So that you give yourself the best chance of finding yourself a ‘deal’.  Slower sales means less people looking and offering on properties in that area. Of course, there are many, many other factors to take into consideration when doing your research and due diligence, this is just a basic start. Supply and demand constitutes just one element, although I hope this exercise has given you a simple, yet effective way of determining your best next course of action in relation to this all-important law. Remember, you can get your hands on lots more property ideas, latest tips and news by signing up to receive my Weekly Property Wisdom emails.  Click here and say 'Please send me my Weekly Property Wisdoms Hazel!' in the subject line.   Have fun with your ratios! Hazel de Kloe Property Investor | Property Mentor | Speaker | Author The contents of this article are for educational purposes only and we make no recommendation of any particular investment. The price of property can decrease as well as increase and you make any investments in property at your own risk. © Why Property Works 2015 |