Despite the property market being on temporary hiatus, I am still being sent potential deals (albeit a fraction of the number from only a few weeks ago).
So, Tom, a potential property investment pops up on your screen or your inbox, how do you go about deciding whether it is worth pursuing I hear you ask? Well reader, let me give you some insights into how I go about it.
At this stage, it’s worth pointing out that this is how I go about analysing properties to invest in, not to live in. Although it follows a similar process (assessing proximity to schools, transport, the prevalence of crime etc.), buying your own home is at its heart, an emotional decision. Investing in property should be based on numbers. Emotions do sometimes play a role, but the final decision should be objective, made by assessing numbers and variables.
For this blog, I will use the last property we purchased, 70 Grosvenor Place in Margate, as an example (you can read all about the purchase in a previous blog if you’re interested https://somersetestatesreit.co.uk/blog/70-grosvenor-place-margate-deal-announcement/20444 ).
70 Grosvenor Place is a block of four, two-bed flats located close to Dreamland in the centre of Margate. (For reference, Margate is a town I know well from previous investments, so I did not need to carry out any research into the wider area - however this is a key part of the process if you’re looking to invest in a new location).
So the property has popped up on my screen, what next?
For me first impressions are very important. Is it a location we know? Does it look like a property we would invest in? Is it similar to ones we already own? Does it look like it needs extensive building work or simply a brush of paint? What does the floor plan show? Is the EPC up to the minimum required level (link to EPC regulations) etc. In an ideal world, all this initial information will be on the estate agents listing, however, the quality of these does vary.
The Grosvenor Place property was sent to me by our managing agent in Thanet and was an “off market” deal and subsequently there was very little information to initially go on.
When this happens, I start with online research.
In the case of Grosvenor Place, I knew the road, but had never stopped outside the particular property. Therefore, I had a quick look on Google Street View and Google Earth., As a first step it allowed me to check there were no major issues with the property and to inspect the immediate surroundings (looking for things like pubs/takeaway restaurants etc.).
Title Register & Land Registry Checks
If Google Earth and Street View don’t highlight any obvious issues, the next thing I do when researching a potential purchase is download the Title Register and Plan from the Land Registry (link). The Title Register gives information on who the owner is, what they paid for the property, if there is an outstanding mortgage etc.
The Title Plan shows an outline plan of the property, so you know what you are potentially buying. I have turned down many properties due to issues shown in the Title documents (for example one house had a right of way running through its garden - which was far from ideal).
With regard to 70 Grosvenor Place Google Earth and Street View did not highlight anything unusual, and the Title Register did not show any adverse covenants or rights of way, nor that the Vendor was trying to sell the property quickly after purchasing for an inflated price.
However, the Title Plan showed that the Vendor had sold off the back portion of the garden. I spoke to our managing agent, who confirmed that the Vendor had built garages on this section of the garden which had then been sold off. There was still a relatively decent sized garden which would allow the occupiers some outside space (crucial in times like these, I think!). Obviously, this would be reflected in any offer we made.
Verifying the EPC
If the Title Register and Plan don’t surface major issues, I then download the EPC from the EPC Register (link). If the EPC is below the minimum required level, I would factor the cost of the work required to bring the property up to standard into any offer. The EPC should also show a floor plan and give the size of the property (which is helpful when working out what to offer).
If everything looks ok at this stage, or at least not bad enough to have you running for the exit door, it is time to arrange a viewing.
Viewing a property
When viewing a new property I aim to arrive at least 15-20 minutes early (nothing annoys me more than an agent being late!) to have a good look around the outside of the building and check out the street. If possible, I’ll also take a trusted builder around any property I view, so we can get an idea of how much work is required and the potential cost.
The main things I am looking for are damp, any significant damage (cracks, broken windows etc), if any works have been recently carried out (one giveaway is the smell of fresh paint which may have been used to cover up any damp patches).
In reference to 70 Grosvenor Place, 3 of the flats were in reasonable condition (not up to our usual standard, but also not the worst I’ve seen by a long shot). However, one of the flats had been completely destroyed by the previous tenant (and I mean completely, and utterly destroyed). Everything of value had been ripped out, and it would require significant refurbishment. Despite this, I was not put off and thought the property could be a good purchase - if the price was right.
The next step I would take is to research what the property is worth and what a fair price is to offer.
In order to calculate this, the first thing I do is look up comparable sales evidence. I predominantly use a couple of websites for this information, Mouseprice – www.mouseprice.com & Property Data - www.propertydata.co.uk. These are both subscription sites which I find incredibly useful.
Mouseprice – I use Mouseprice for comparable sales evidence and a guide on values. It is possible to run an Automated Valuation which pulls all comparable sales evidence together to give you a value on the property you are researching. They also provide a rental valuation as well.
Property Data – I use Property Data to give me a long term view of what is happening in the property market as well as for detailed property valuations. It is a fantastic resource which really delves into the stats to give you a great idea of what is going on. I could write a whole other blog about the different ways I use it. One of my favourite tools is the “Yield Hotspot”. This identifies high yielding locations throughout England and Wales. I 100% recommend checking it out and if you use this code you will get a discount:
I used both Mouseprice and Property Data to come up with a value for 70 Grosvenor Place. This research indicated that over the previous 12 months, 237 flats (average of 1.8 bedrooms) sold in Margate and the average price was £139,052. This would give an open market value for 70 Grosvenor Place of around £550,000. Three of the four flats were rented at £525 per calendar month. As discovered on the viewing, the fourth flat was a complete wreck and required a full refurbishment. Once again, my research indicated that these flats are rented at below market-value rates. At the time the average asking rent in Margate for two bed flats was £650 per month. Therefore, once the flats were refurbished we believed we could increase the income from £25,200 to £31,200 per year (side note, we did achieve this following the refurbishment of the fourth flat.) We estimated that the refurbishment works would cost around £60,000 in total.
Right, so all the research is done (apart from the legal searches, which might throw a spanner into the works!) so how did I come up with an offer that secured the property.
Making an offer
When making an offer on any property it is important to arm yourself with as much information as possible. I put into writing why I am putting that particular offer forward, and I try to make it as fair as possible.
With regard to 70 Grosvenor Place, we were after a 7% gross yield. Based on the improved rental income of £31,200 per year a 7% yield would give a purchase price of £445,000. However, the property required work and there was obviously an SDLT bill and legal fees to cover. Therefore, I put forward an offer of £360,000 with the promise of a quick exchange and completion. After a bit of back and forth this offer was accepted, and the rest is history.
So there we have it. My deal analysis process.
There are many ways to do this, and I do not necessarily believe my way is the best way to go about it. However, it works for me and has been successful so far. In a nutshell, I gather as much information as possible and then use my experience and a dose of “gut feel” to come to a conclusion. For me the real skill to learn in property is to buy well, “You make your money when you buy, not when you sell” is a favourite comment at Somerset Towers.
As always, if anyone is after any property advice or chat please get in touch