Searching for a home to live in is said to be one of the most stressful tasks we do in our lifetime.
And yet, property investors must be very resilient to stress, because they actually choose to engage in this searching process time and time again. Wealthy property investors will need to search for many additional properties just to find suitable places to store their money for the long term.
So what do property investors know that ordinary homebuyers don’t?
Well, for one, as they won’t be actually living in the property themselves, they’re in a more objective place to compare and contrast properties and make a purchasing decision. They're better able to use the knowledge gained from the top investing books without being swayed by emotion.
By being more objective, and performing a lot of the decision making at a desktop level (i.e. reviewing it on paper rather than agonising over the details of the property in person), they’re able to remove a lot of the emotion and stress that home buyers tend to experience.
Here’s a guide to what property investors look for when searching for an investment property:
What to look for
A property investor will want to maximise the potential tenants for their property. To do this, they will want to buy a property in a location which services a wide catchment area in terms of employment opportunities.
If a house is located in a small village 40 minutes away from civilisation, then it's safe to say that it can only be comfortably inhabited by someone living and working in that same village. That’s a small catchment area.
A house within walking distance of a train station is suddenly on the market for anyone who works in nearby connected towns and cities.
A house near main roads and a motorway junction will also be in demand from anyone with a factory or industrial job in the 20 - 40 miles around that property.
With a property in the right location, an investor can increase the list of potential tenants 100 fold compared to a remote one.
A property investor who wants to let their money earn a return passively will want to avoid any properties which require extension renovation. Properties in disrepair cannot be let out for the going market rate (and may not meet regulations to be let out at all). This will require further outlay in terms of tradespeople and materials to bring the property up to modern standards.
Therefore for a property investor who wants to achieve scale without being a construction project manager, properties with modern fit-outs are a must.
This doesn’t necessarily mean ‘new build’ properties, however. Curiously, due to a slip in construction quality, you may find that new-build properties actually require a significant amount of work to be performed under warranty by the housebuilder over its first few years. As a buyer of a brand new property, you also cannot be sure that the building won’t be subject to subsidence or other serious issues as the land on which the estate was built continues to settle.
An investor hopes to achieve capital growth on the price of their property, in addition to rental income. Price growth is often linked to national economic metrics like interest rates, the economic cycle, government housing incentive schemes and so on. These are often out of the control of an individual investor.
However, there are local factors which can identifiably show that the expected growth in one area will exceed others. Estate agents often publish forecasts nationally to help investors understand their latest expectations.
Local economic growth, caused by significant industrialisation/commercialisation of the local area, or by external investment (e.g. by international agencies) or by a very large local employer can all help to lift house prices as they pump more money into the area. This both arms residents with more money to compete against each other to purchase, and also increases the number of people moving to the area to work.