Ahh, the Holy Grail of property investment, “the next hotspot”
The theory is, investing in up-and-coming locations rather than already popular locations will give you a much better return on your investment.
We’re all after it, but where it is, and how do we find it?
The concept of identifying an upcoming hotspot idea is not rocket science, although it is notoriously difficult, and the opportunities are limited (“otherwise everyone would be doing it”).
A good and obvious example is the London Olympics. Before it was confirmed that the 2012 Olympics was going to be officially held in London, many people took a gamble and purchased property in the Stratford area because the proposal was to centre the events in the planned Olympic Park in Stratford. When London got the go ahead, those people had money signs in their eyes.
While that was a fine “spot”, it was a once in a blue moon opportunity. Finding upcoming hotspots in major cities like London, Manchester or Bristol is unlikely, especially to the scale of what Stratford achieved off the back of the Olympics.
There are several signals used to identify potentially upcoming ‘hotspots’, including the development of transport links, but many of them I find terribly limiting. For example, some argue that ‘good schools’ can be used as an indication to predict a hotspot.
Yeah, I’m not entirely convinced, because good schools are more likely to be situated in already established areas; when was the last time you heard of a good school in the middle of Moss Side?
In any case, here’s a list of signals that I have used in the past to help determine which area is most likely to be a potential goldmine…
1. Employment Opportunities
Huge development projects that will encourage a mass growth in employment such as factories, business parks and/or hospitals is a pretty good indication of potential local growth. Employment opportunities can attract hundreds, if not thousands of people from other areas. Those people will need places to live, or rent. A local population growth can also have a significant impact on future developments i.e the more people in a town, the more commodities a town will need.
If an area has plans for major regeneration (which is what happened to Stratford in preparation for the Olympics) then it’s a good sign that the local authorities have funding to pump into the local area. An area with a positive agenda like regeneration is a no-brainer for investment. Sweeping the grit off the streets and transforming into a more presentable area will entice people to move into those locations, and that’s when property will be in demand.
3. Growing Student Areas
A lot of areas in London have become extremely trendy for students, especially places like Clapham and Dulwich. Many students initially flocked to those areas because they were cheaper alternatives to the city. Due to the mass growth in the student population, a lot of trendy bars and restaurants started to emerge. Once upon a time it was extremely affordable to buy in those areas- not anymore.
4. Upcoming Surrounding Areas
Look for areas that aren’t so popular, but have surrounding districts that are already popular and desirable. Eventually when those popular districts get overly popular and expensive, the demand for property will overlap into the surrounding locations. I just mentioned that Clapham and Dulwich have become increasingly popular, and that has had a direct impact on the surrounding district, Hackney- a once seen hell hole is now becoming a ‘hotspot’ thanks to its local brothers and sisters.
5. Transport Development
Transport is [arguably] at the top of the list of being one of the biggest factors that draw in buyers and renters. Good transport links automatically add value to a property’s price tag. Look for areas that have plans to improve local transport; you can get information from your local council.
Research released by HotProperty.co.uk finds property within a five minute walk of a tube station can be up to 21 per cent or some £80,000 more expensive than a similar property half an hour away.
Do you need to invest in an upcoming Hotspot?
I think it’s important to realise that most average investors and landlords do NOT buy in upcoming hotspots, and they’re still terribly successful. That’s not because they don’t want to – everyone does – but simply, as I have already said, opportunities are limited, and they’re difficult to pinpoint. I’m sure most people get it wrong anyways.
So in short, no, I don’t think you need to wait around or pin your hopes on the ultimate goldmine. That said, being aware of the critical variables of what make a sound BTL investment is critical.
I don’t follow any magic formulas, other than the basic principle of supply and demand. I buy in an area where demand is relatively low but where I believe more people will want to rent in the near future. Generally, you will be expected to pay above the odds in already booming areas.
Last year I purchased a property in Harlow, Essex. This was around the time when speculation of the expected “property crash” started to race around the circuits. Harlow is a small town outside of North London. It has a few thriving business parks and a large hospital which attracts plenty of workers. During this time, property prices were at their peak (hence why many anticipated a crash), so buying was out of the question for many. But there were a few areas in Harlow that were extremely affordable which were prime locations for the local nurses and factory workers to live.
While this wasn’t entirely a ‘hotspot’ find, because the area was already developed, the rental demand was there, and there were still parts of the town that were less desirable. In general, if parts of an industrial town are being developed, it should positively reflect on the less developed areas. The logical step was to find an affordable property based in one of those less developed spots, which had scope to attract a lot of tenants.
One year later, while the cynics are still hauling all their savings under their mattress and bracing themselves for a crash, the property gained £20k in value.
Final important note
Wherever you decide to invest, make sure you get in early.
Once a ‘hotspot’ leaks out, sheep will follow and the profit margin will shrink rapidly. Stratford was announced as being the central point for the Olympics 2012- the people that got in early don’t need to worry about their pension- those that want to get in now are running a risk of losing their pension. The surrounding areas, however…
Disclaimer: I'm just a landlord blogger; I'm 100% not qualified to give legal or financial advice. I'm a doofus. Any information I share is my unqualified opinion, and should never be construed as professional legal or financial advice. You should definitely get advice from a qualified professional for any legal or financial matters. For more information, please read my full disclaimer.