Where should you invest? (Includes my own research process)

Buy-to-let can be a great investment – but not all buy-to-let investments are created equal.

The specifics of the individual property you buy matter a lot, of course. But the one thing you can never change about a property is where it is. Over the last ten years, property prices in some areas have doubled. In others, they've gone backwards.

And this isn't just at a regional or city level: the area of town you buy in will have huge implications for the success of your investment.

So, this article is all about where to buy. We'll look at:

• Should you always invest near where you live?
• How to narrow down your options
• Where not to invest
• How to get to know different areas of a town from your desk (I share my process)
• Getting from area-level to street-level knowledge

Home or away?

Like most people, I started investing close to where I lived. Now though, I'm happy to invest anywhere – and have a portfolio spread across the country.

That is unusual, and I'm not saying it's the right thing for everyone. But I would say that it's not a good idea to buy locally “just because”.

After all, what's the chance that you live in the absolute best part of the country for property investment? And even if you don't need the best, what if (for example) your strategy requires you to buy high yielding properties and they're not available in your area?

Of course, all else being equal, local is easier: as well as saving on travel time, it saves building up that real “local's” street-by-street knowledge in another area. And if you're going to be extremely hands-on with either refurbishment or management, you'll want to keep it close.

So deciding where to buy starts with the decision about how far you're willing to go. If you want to keep it very local, that's your decision made. But if you choose (for example) a 45-minute radius – or even “anywhere” – you've got some narrowing down to do…

How to choose an investment location

With a large geographical area to choose from, you need a way of cutting down your options. Even if the method is somewhat arbitrary, it doesn't matter: you'll never be able to research every single UK postcode and choose between them, and if you try you'll just get stuck in the research phase for years.

Some methods of narrowing down the field include:

• Areas you can easily get to by train from where you live
• Places where you've lived before so you know them well
• Places where you have friends or family living, because you'll have the beginnings of a network there (and will be visiting sometimes anyway)
• Somewhere you know someone else has invested successfully (also known as “copying” – nothing wrong with that)
• Areas where you see a particularly strong investment case – due to large-scale infrastructure investment, for example

Those filters might leave you just one city or town to investigate, or there might be four or five to dig deeper into. Either way, it's more manageable than when the choice was “anywhere”.

From there you can either do some deeper desktop research to choose which you think has the best potential, or pay a visit and meet some local agents to get a feel for which excites you the most.

Where not to invest

Even if you have family living there or it's super convenient, there are some places that just aren't going to work well for property investment.

Those areas include:

• Rural locations. However lovely the scenery, there's usually not enough rental demand
• Towns with poor transport links. There are certain towns (such as Dunstable and Haverhill, without meaning to pick on anywhere) that for some reason just don't have much in the way of public transport access. That puts me off because there's heavy reliance on local employers, and will always cap demand
• Towns with just one big local employer – whether that's a heavy industry or a university
• “Prestige” locations, like Oxford or York – purely because prices are normally (but not always) too expensive for the yield to make sense

All of these can work: there are people being successful with property everywhere. I'd just consider them more challenging for the average new investor to find safe opportunities where the numbers add up and the management should be straightforward.

From city to area: my process

So you've got a city or town. The next question is…which area of town do you want to invest in?

Even in the smallest towns, there will be multiple areas with distinct characteristics: the “family” area, the “cool” area, the “feel like living dangerously” area, and so on.

Assuming you know nothing about the place you've chosen, how do you figure out what's what? I'll share the process that I go through: it's not particularly scientific, but I find that it gives me a good general understanding in very little time.

• Google a phrase like “areas in [town]”. This will usually bring up message board threads with locals talking about different places to live.Any one person will be biased, but patterns usually emerge. Where is everyone saying “avoid”? Where is supposed to have good schools? I'll look at these areas on a map and start getting a sense of the local geography.
• Draw up a shortlist of a few areas based on what I've read. The shortlist will depend on the strategy: if you're aiming for the highest possible yields, the areas where everyone says “avoid” could be the first you look at.
• Steps 3 and 4 only really work if the first part of the postcode maps well to a particular “area” of town. Often it does, but if not you can just skip these steps.Get a rough idea of selling prices in each area of interest. The quick way to do this is to go to home.co.uk, select “Prices and rents”, and search for the first part of the postcode. Then look for the link called “Selling prices since 1995”.This will bring up reports allowing you to see e.g. how much the average three-bedroom property in this area tends to cost.
• Go back to the homepage and search again, this time using “Market rents” to get an idea of what rents are being achieved in this postcode.By putting the prices and rents together, you can start to get a feel for very roughly what sort of yield you can achieve in each area.
• Go over to Rightmove, and enter a full postcode (not just the first part) in the middle of your area of interest. Search for properties for sale within 1/4 mile of that postcode (or 1/2 mile if you don't get many results).Then go to “map view”, and start hovering over each property and getting a feel for how prices change with location. It's not a scientific approach, but you'll soon get a sense of the overall maximum and minimum prices for a particular type of property, and a feel for where a “good” area becomes a “bad” area.
• Repeat step 5, but looking at properties to rent. You should notice that they roughly track property prices: where properties are more expensive rents tend to be higher, and vice versa.By putting steps 5 and 6 together, you'll be able to work out a rough gross yield for different property types in different micro-locations: just multiply the monthly rent by 12, then divide by the asking price.
• Validate your findings with someone who knows the town – whether that's a friend or fellow investor, or an estate or letting agent.You could, of course, just ask these people for their opinions at the start and skip the first 6 steps! But I think doing it yourself gives you a deeper understanding, and removes the risk that you'll be led astray by just one person with a strong bias.

From area to street

You've gone from city-level to area-level now, and you're developing a degree of street-level awareness as you'll pick up on “pockets” where prices suddenly change.

This should be enough to narrow your search down to one or two areas where:

• The characteristics suit your chosen strategy
• Houses are within your price range
• Yields are acceptable for what you're looking for

Next, you'll need to start really building your street-by-street knowledge and getting a lot more precise.

You can continue this online, but this is a good point in the process to either spend some time in the area yourself, or speak to local property professionals – or, preferably, both.

If something you're told contradicts your own research, trust what the agent says (and it's not often you'll see that recommendation). Again, don't put too much stock in what one person is saying, but if you're repeatedly being told the same thing then chances are it was your broad-brush research that led you astray.

Conclusion

With your street-level knowledge building up, you're finally in a position to start viewing actual properties.

That means that beyond looking at areas, you'll need to assess the strengths and weaknesses of specific deals: read my article about how to do exactly that.