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As investors we should be looking to target rental areas which will produce decent overall returns - a combination of rental income and capital growth, coupled with good rental demand and at an affordable cost of entry.
There is much talk of the London property market and many investors swear by it as the optimum investment location. However, there are at least a couple of challenges with investing in central or even greater London - short-term rental returns (and crucially cashflow) and investment affordability (i.e. deposit and acquisition costs).
Good alternatives are therefore where a lot of new investors and seasoned alike tend to look. There is much discussion about whether investing with a bias towards rental yield further north say is better than sticking with a bias towards apparently better capital growth closer to the Big Smoke but whichever side of that particular argument we land on the underlying foundations of an investment location should always be taken into consideration. My personal summary of these foundations is summarised under the 'STAR' mnemonic.
STAR stands for:
Schools - good local schools suitable for the family rental market or in the case of University towns, universities with a demand for student's renting private rental accommodation. Note that I have also used the flip of this to seek out potentially attractive rental locations for singles and professionals without kids...
Transport - meaning good access to suitable transport, be it public transport or car routes to access employment and amenities
Amenities - meaning shops, restaurants, leisure facilities, health centres and the like
Revenue - meaning a healthy job market and also regeneration investment
This article essentially hones in on 2 of these key characteristics in nominating Bracknell, Gravesend and Reading as ripe for growth (capital appreciation). I am drawn to the regeneration numbers quoted of course but equally look at the term 'commuter'. Commuter by definition means someone travelling to their place of work and with journey times to central London rail stations at between half an hour and an hour you can see why (bearing in mind connections at home to local mainline station and onward connections also need factoring in). So, I can see a lot of merit in considering these three towns from an investment point of view but not without looking at the other factors more closely obviously (including underlying rental demand and yields).
What the article does not say is what other towns could be in line for similar growth opportunities and no doubt many of us will already be looking but the obvious places to start a search would be along the Crossrail, Thameslink and northern HS2 routes, as many of these towns are likely to see a significant reduction in journey times to central London also. In which case, there could be one or two more locations to add to the short list to consider.
That all said, it's one thing to identify a potential up and coming rental investment area and another to actually be able to enter that market. Take for example Reading with its average property price quoted at £236k - an average investment there would require a hefty starting fund of over £60k to fund a deposit and fees even if no refurbishment works are required. And that is often the reason why a lot of new investors will stick with a 'look up North' option at least to begin with. In all honesty, whichever way we go (south + capital growth or north + high income), as long as we do our due diligence on the 'STAR' rating, stick to high rental demand areas and get our sums right, we should be able to make a decent investment over the longer term.
The biggest hurdle is starting and then once starting, moving on to the second and third investment - the top two solutions to which are equity release from an existing property (e.g. your home) and / or a commitment to saving. But having making a decision to start investing and then choosing an investment location and property wisely can reap the rewards in the years ahead for sure. So be it Kent, Berkshire or anywhere else for that matter - getting the foundations right is essential to success as is the commitment to taking that step on the first or second rung of the property investment ladder.
Source & credits: Homes & Property
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