Given my minor public profile as someone who thinks about property way too much (and is probably somewhat lacking both socially and in Vitamin D), I get a fair few investment opportunities finding their way to my inbox.
And because I don't restrict myself to investing in one particular location or type of property, I can't immediately tell whether the opportunity is a good one.
(Actually you can normally spot a weakness by looking for what you're not being told, but that's a story for another day.)
As a result, I've developed a procedure for looking at a particular property and deciding:
- Whether it's something I'm interested in
- How much to pay for it
Having a written procedure has vastly reduced the amount of time I spend looking at any given property – and makes it possible for me to save even more time by passing it to another member of the team to execute.
In this post, I'll run through what that procedure is.
- Is it a flat, terraced house, semi-detached house, bungalow, other?
- How many bedrooms?
- How many bathrooms?
- How many reception rooms?
- What's the total floor area? (Pro tip: You can find this on the property's EPC)
- What outdoor space is there?
- What's the general condition?
If it's a flat…
- Which floor is it on?
- Out of how many floors in total?
- Is it ex-council?
- Is there a parking space?
- Is it of standard construction?
- How many unexpired years are left on the lease?
- What's the annual ground rent?
- What's the annual service charge?
- If it's being marketed by an agent, when was it first listed?
- Have there been any price drops?
- When did it last sell, and for how much?
- Has it ever been entered into auction?
What else is on the market?
I look at properties that are currently on the market, of a similar type and size, within a quarter of a mile. For each, I note:
- Type of property
- Number of bedrooms
- Floor area
- Asking price
- Date listed
- Any price drops or status changes?
- Any other relevant notes affecting value (e.g. condition, outdoor space)
If there aren't enough results, I'll open up the search area to half a mile and/or relax the constraints on the type and size of property – being aware that this will reduce accuracy.
What else has sold?
I'll look at sold price data for the last few years, noting down:
- Type of property
- Number of bedrooms
- Date of last sale
- Sale price
- Any other relevant notes affecting value
You can get house price data from many sources (they're all pulled straight from the Land Registry), but my favourite is Rightmove because often it has photos which you can use to determine condition etc.
What do the agents say?
I'll call a couple of agents who are selling similar properties locally, and ask for their opinion on what they feel is an achievable selling price, whether it's a pure “investor area” or if it would appeal to owner-occupiers, as well as any other information I can pry out of them.
It's always worth considering their own incentives for “shaping” the truth, but in my experience agents are pretty honest and helpful (shocker!) when you just call out of the blue.
What does a mortgage advisor say?
If there's any doubt about the ease of obtaining a mortgage on the property, I'll ping some information over to my mortgage advisor to get an opinion on whether there are likely to be any challenges.
For the most part there are more issues with flats than houses, which could include:
- A short lease
- Too many storeys
- Above commercial premises
- Non-standard construction
- Ex-local authority
What is available to rent?
Exactly like I looked at what was on the market for sale, I do the same for rentals. I will include those listed as “Let Agreed”, because these have normally let in the last few weeks so count as being relatively current.
As well as the asking rent, property type and number of bedrooms/bathrooms/receptions, I'll note down:
- Date listed
- Status (available / let agreed)
- If it's offered furnished/unfurnished/part-furnished
What do the letting agents say?
Just like with sales agents, I'll call a couple of local letting agents who are marketing similar properties and ask them:
- How quickly properties tend to let
- What they think a typical rent would be
- What type of tenant it would attract
- Whether there's a strong preference for furnished/unfurnished
As before, I find agents to be fairly helpful – although with lettings in particular, there's pot luck involved in how knowledgeable the person who picks up the phone is.
Working out the numbers…
Based on the research so far, I'll work out:
- Best case market value
- Worst case market value
- Best case rental value
- Worst case rental value
- Best case gross yield (top rental estimate / bottom of capital value range)
- Worst case gross yield (bottom rental estimate / top of capital value range)
I'll then plug these numbers into a spreadsheet along with an estimate of expenses (mortgage, voids, maintenance etc.), to calculate the likely ROI.
If the property isn't in a location I'm familiar with, I'll also do some research into the demographics of the area:
- What percentage of the local housing stock is owner-occupied?
- What percentage of the local housing stock is privately rented?
- What percentage of local people are unemployed?
- What is the social grade breakdown of the area?
- What are the crime statistics for the area?
The need for speed
When you get quick at this process, it should take under an hour – and you could even write up a procedure so someone else can do it for you.
It's not enough to make a definite investment decision on, but I generally find it's thorough enough to decide whether to start really digging in.