How To Find Investment Property With Potential

Buying an investment property is an exciting way to get into the world of property investment and start growing your portfolio. But what property should you choose? There are many factors that make an ideal investment property, including the location, the condition of the property, potential rental yield, capital growth and more. Read on to find out what you should look for in an investment property.

Table of Contents

Choose Your Ideal Location
Consider the Target Market
Property Condition and Opportunity for Adding Value
Yield and Cash Flow Potential
Capital Growth Potential
Legal and Planning Considerations
Market Timing and Buying Below Market Value (BMV)

Choose Your Ideal Location

The old adage of ‘location, location, location’ is true – you can change a lot of things about a property, but you can’t change where it is. This should be a key factor when choosing an investment property. Cities that are undergoing regeneration are often good locations for investment properties, as expansion in the city and the local job market mean that houses will soon be in high demand, especially in up-and-coming areas such as Salford in Manchester. Consider the exact location of a property within a city or a nearby town – is it easy to get to local amenities like shops and schools? What is the neighbourhood like? Is there a main road nearby? What transport links are accessible? These are all things you should be thinking about when looking for an investment property.

Consider the Target Market

You should consider what kind of tenant you are looking to rent to – are they young professionals who crave the buzz of city life? Perhaps they are students who need to be close to their centre of study, but also within walking distance of local nightlife? They might be older people looking for a place to live following retirement, or a growing family that looks for good schools, local parks and safe neighbourhoods. All of these people will be looking for a completely different property, so remember this when browsing for an investment property.

Property Condition and Opportunity for Adding Value

The condition of a property can make all the difference to its value, potential for capital appreciation, rental yield, and more. A modern, well-presented property with a newly fitted kitchen and bathroom, plus a well-kept garden, is always going to be a big hit, but look for more neglected properties with the potential to shine. An old-fashioned or poorly presented property could be a hidden gem that just needs some work to make it shine. Renovating a property, adding an extension, or changing the layout of the inside can make a huge difference to a property’s value. Just be aware that renovations can cost a lot more than you expect, so get a survey done on a run-down property to make sure the renovations needed are within your budget. Look for structurally sound properties that have an inefficient layout or unused space, like lofts, cellars or large land plots, as they can massively increase in value once carefully renovated to make the most of the space.

Yield and Cash Flow Potential

If you are planning on buying an investment property to let, then consider the potential rental yield of said property. Rental yield is how much profit you can expect to make from a rental property, minus all running costs. This depends on many factors, such as the average rental value of other similar homes in the area, the costs of renting out said property, and the sale price of the property. This blog goes into detail about the top UK hotspots for rental yield, but there is more to consider than the location for rental yield – the size of the property, features and other aspects make a difference too. Here’s a handy formula to help you calculate the net rental yield of a property:

((Annual rental income – Annual expenses) / Property purchase price) x 100 = Net rental yield

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Capital Growth Potential

If you buy an investment property, chances are you will sell it one day, even if you do rent it out for some time. This is another way of profiting from your investment property. Houses tend to appreciate in value over time due to market trends and the ever-increasing demand for homes, especially if they are well-maintained. Some properties will appreciate in value more than others, especially those in a rapidly growing area or places where a lot of investment in infrastructure and regeneration is planned. Take the time to research the historic price trends of an area and any planned regeneration projects.

Legal and Planning Considerations

It’s important to check the legal and planning background of a potential investment property. Start with a title check to confirm ownership, boundaries, and whether any charges or restrictions are registered against the property. Reviewing the planning history and local planning policy will help you understand what development or changes are permitted, which is vital if you plan to refurbish or add an extension to the property.

Be aware of Article 4 directions, which can limit permitted development rights, which are particularly relevant for HMOs or conversions. Check whether the property is freehold or leasehold, as leasehold homes may have ground rent, service charges, or restrictive lease terms. Also, watch out for restrictive covenants, conservation area rules, or flood zone designations, all of which can impact future plans and insurance costs. This due diligence is essential to avoid costly surprises later.

Market Timing and Buying Below Market Value (BMV)

Knowing the right time to buy a property can be a good way of getting your ideal investment property for below market value. Look for highly motivated sellers who are more likely to accept low offers, houses for sale at auctions or those on sale following repossession by the bank. Off-market properties can be good value -these are properties that are not publicly listed for sale, but offered to a select group of buyers for a discreet sale. Build relationships with estate agents and others in the property industry to find out about off-market and BMV properties before others, so you can get your offer in quickly. As always, make sure you see a property in person and get a survey done before agreeing to buy an off-market property or buy at an auction.

A promising investment property offers potential through its location, condition, yield, capital growth prospects, legal flexibility, and timing. The best deals often come from looking a little closer than regular buyers and taking the time to seek out those hidden property gems. Consider building a property investment checklist, connecting with local industry experts, and seeking professional advice to assess opportunities thoroughly. With the right knowledge and approach, the perfect investment property is out there waiting for you.

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