In the latest instalment of his buy-to-let masterclass series, property expert and presenter of The Property Podcast Rob Bence looks at how to find the next property hotspot.
With 2018 drawing to a close, property investors will be looking ahead to the next 12 months and considering their next investment.
But how do you go about choosing a location? For most investors there’ll be mitigating factors that will influence the decision.
Some like to buy properties near to where they live, for example.
Others will be swayed by the type of property they’re after, which will then determine where to look.
For those willing to take a punt on a new and upcoming area, there can be big rewards and the simplest way to identify these areas is by using a technique we call ‘the ripple effect’.
It’s a very simple and, in some ways, obvious tactic.
Spotting the first ripple
When property in one area starts to become more expensive, those people who would have traditionally bought in that area are priced out and have to start looking a little further afield.
They’ll buy a property in a nearby location (so the original spot is still accessible) and this second area will, in turn, start to see price growth as a result.
That means the people who would have bought in this second area are also priced out and have to move a little further out and so on and so on.
So that initial price growth in the first area causes a ripple effect that spreads much wider.
The most obvious example of this is London. Following the economic crash in 2008, the London property market was brought to its knees.
Prices fell significantly.
However, overseas investors who saw London as a safe haven for their money quickly began to snap up prime London properties, pushing would-be buyers further out.
This ripple effect continued until almost all of the South East was impacted.
Indeed, in 2016, eight years after the crash, Luton was named the best investor hotspot in the UK by estate agents Jackson-Stops.
Liverpool an intriguing prospect
A similar thing is happening in Manchester.
A few years ago the city was not seen as the first choice for property, but millions of pounds of private, public and overseas investment has seen Manchester soar and as a result, the surrounding areas in Greater Manchester have also seen significant price growth.
I predict Liverpool will be next.
Overseas investors currently ploughing money into Manchester will start to look for their next location and Liverpool ticks a lot of the boxes they’ll be looking for.
We’re already seeing development there and I know from speaking with developers that there is a lot more to come.
So how can you identify the ripple effect elsewhere?
How to spot the next big thing
Well, the important thing to remember is that all ripples start with a stone being thrown.
That stone could be a number of things: gentrification is a big one.
Once an area becomes a nice place to live, more businesses move into it, more amenities are created and prices start to rise.
East London is a perfect example of this.
Transport links can also start the ripple effect: a new train station, for example, can see prices increase in areas 10 or 20 miles away.
When an area becomes a ‘commuter’ town prices can soar.
It’s a commonly-used tactic, but it’s not for the faint-hearted. To really make the most of the ripple effect you need to be brave.
You need to get in on an up and coming area before anyone else, before you, too, become priced out.
But, if you’re willing to take the plunge, it can reap huge rewards.
Source: Love Money