The Location Hunter - Chapter 3

What to Hunt?

At this point, before the search, we should define what each of us is looking for in broad terms. Different investors in different stages of life (with different cash positions or life goals) could be looking for very different property. We will cover this subject in more detail in the following chapter. However, at this stage, I am going to make the assumption that we are all looking to make money from the investment, it just depends on how quickly we want to make this money and how much risk we are prepared to take to make it.

Finding Where to Hunt

Unless you are fortunate enough to live on the doorstep of a rich hunting ground that fits your objectives, then remote research via the internet and publications are likely to be your first weapons. Indeed, I would argue that even if you are adamant that you are living in the middle of a property hotspot that is waiting to explode, it would still be prudent to look around you just to be sure you are seeing the "wood for the trees". Communication links coupled with cheap and accessible travel options mean hunting grounds further afield are available.

So how far are you prepared to go? Some investors I have worked with say that the best place to buy is on your doorstep as you know the detailed breakdown of an area and where tenants are likely to choose as a preferred location. This is undoubtedly true. However, each of the locations I have invested in were relatively new to me and if I had taken heed of the "local knowledge" too much then I would never have invested a bean. Reputations and legacy issues connected to an area or suburb may have been relevant years ago (and still in the mind of locals) but are not relevant today. This will be obvious to anyone coming from outside, new to an area and applying some general principles. One example of this from my experience was when I was investing in the city of Aberdeen in north east Scotland in 2002. The received wisdom of all letting agents and estate agents was to buy properties in the best areas and avoid "like the plague" some less well-developed areas of the city. I followed this advice for about 6 months and acquired 5 flats in good areas for around £30,000 which gave a good yield of around 12%. Pretty good, but I found my limited funds drying up very quickly and was still drawn to areas (Torry in particular, if you know the city) where properties where around £15,000. To me, the properties looked the same and the rents were very similar, so a yield above 20% was possible. Taking the advice of a very good contact and friend who knew the city very well I decided to take the plunge in this more risky but lucrative area.

Over the next 2 years I was lucky enough to purchase another 20 flats at this lower level and found the rents were sustainable, if well-managed. Looking back, it was these cheaper properties that really allowed our business to take off as their capital values increased at a far higher rate than the more established areas. At the peak of August 2007, the values of the more established areas had increased by around 300% but the riskier investments had actually increased by 500%. For me, at my early stage of investing, it made more sense to take the higher perceived risk for the higher potential return which resulted, counter to the advice that many locals were giving. So sticking to received wisdom may not always be the best method, your investments must fit with your own personal objectives.

In terms of distance to research, I would consider your time available, your proximity to transport links and costs of those links. As we will discuss in Chapter 5, it is likely that you will want to visit your area of investment on a regular basis and it would be an advantage to be able to do this quickly and cheaply if an emergency arose. For me, this is of great importance. Even though I have a good control of time at my disposal, I do not want to feel I cannot control my investment (and therefore business – see chapter 7) in an effective manner if I am too remote or seen as too remote from those involved with my investment. So for me, being based in Europe, I will [mainly] stick to investments that are available in Europe as long as they are available. We are blessed with quick and cheap air travel across Europe which means attending your investment from anywhere to anywhere can be achieved in one day or with just one overnight stop. That's not to say I have not been tempted to investment further afield.

So having considered distance to travel, where should you start to look?

What about consulting the media or talking to other investors that have success stories from locations you would never have considered? This approach will certainly broaden your horizons and may open your mind to pastures new. Indeed, I will include some areas from my research in the Appendices which will do just this. But a word of warning here. Are these stories of a successful historic "hunt" a good indication that the hunting ground will remain fertile in the future? Is there anything left for you, that fits your objectives? This is a really tough and important point. Past stories of success (and sometimes failure!) are easy to find and will come to you without effort, being printed in the media, displayed flamboyantly at exhibitions or spoken about around tables at dinner parties. These stories are of great interest to any hunter of course. How did they select the area? What methods of purchasing and finance did they use? etc. But are there genuine reasons to copy the actions of the hunter in the story in the same location or has time moved on? This is highly likely and appears to be directly correlated to how loudly / often the story is told as the number of successful "hunts" over time increases. In contrast to this, the pro-active 2 stage approach we will lay out in this chapter involves some effort, be warned. By following this approach I would say your chances of success are greatly increased.

Let the Hunt Begin – Stage 1

Okay, you have selected a number of areas (perhaps countries or particular cities or regions) in which you would like to carry out some detailed research. What next? As it is likely you do not live in the location (or even if you do) it is time to sit down in front of the computer and do some work. Here are some sources to use that are likely to yield some results:

Google – carry out a search with terms such as "property market in ..." or "property statistics in....". More detailed research with terms as "property for sale in.." will lead you direct to selling agents but it would be good to keep things more general at the beginning. Of course, like any search on Google, you will be presented with "natural listings" on the left hand side of the page based on relevance and also paid for advertising links in the right hand side (and perhaps at the very top of the left in a shaded section). Again, it may be best to stick to the material in the natural search which Google has deemed most relevant at the start of your research and use the whole of the results page as your research progresses.

General Area Research – To find out statistics on an area such as population trends, income levels and housing trends. Good sites could be:

OECD

The EU

Governmental sites (city councils etc)

Buy Association (some good podcasts)

The Times

Blogs and Forums - To get (hopefully unbiased) feedback from other investors in an area. There are thousands of these. Here's a couple that I have found useful:

PropertyCommunity.com

OverSeasPropertyMall.com

Property Portals – A fantastic way to research and compare large areas or regions in a very efficient manner. Portals are everywhere now and cover complete areas, regions, counties and even global coverage. If you know an area, you will know which portals people of that area use. If not, why don't you find out? Blogs and relevant forums should help with this. Here's one that I have found useful in the past, there are many more:

The Move Channel

Specific Area Research – Hopefully from unbiased sources which can give the low-down on particular areas. The printed press have good on-line presence (ft.com for example) and can be a useful, easy to search source of independent information.

Here's a link I have found useful in this area:

Global Property Guide (very good!)

Of course, not everything can be achieved on-line even at this early stage of the research. Perhaps you would consider meeting other investors face-to-face at a property club or seminar that is in your area. What about attending a property exhibition that has exhibitors that are relevant to your area of research? As with the research conducted on-line, it is always worth considering the level of bias in the opinion given and the person's motivation for giving the opinion.

Detailed Phase – Stage 2

Although some more detail can be carried out on the internet (by visiting property agents sites for example), it is probably now the time to hit the ground in your area(s) of choice from the early research phase. If practicable, on your first trip it would be best to do this with the minimum of input from sources on the ground that have excess bias and will make money from your investment. If this is not practicable, then using a number of sources should level the bias out to some extent. The aim of this phase (which will involve a number of trips perhaps) is to:

• Determine if the area confirms the results from your earlier research.
• Find out if the area is somewhere where you would like to do business.
• Evaluate different micro-locations for potential against your objectives.
• Decide if travel to the area is a realistic option.

This can be a lonely time if you travel by yourself, and are in a country or region that you have never been to before. Be brave! When in this phase I like to stay in a variety of places (and levels of comfort) to find out more about different areas and what levels and standards locals expect. When travelling around I will prefer to use the public transport and watch how well it is used, which areas are particularly busy and what kind of people are getting on and off the transport. When walking the streets, I am looking at the type and number of cars parked in the street as an indicator of relative wealth. I look for signs of optimism in an area. This would include recent or ongoing new-build projects, active refurbishments (skips and scaffolding) or sights designated for imminent future development. Another good indicator at street level is the number and type of commercial outlets in an area. If it is a region which has a large number of local stores (i.e. not dominated by out-of-town retail) what do these stores sell and what level of the market are they servicing, compared to other areas locally, not your home town. Other good indicators at the street level are outlets for locals to spend their disposable income for example pubs and restaurants, theatres and the like. Do these outlets match the kind of tenants you are seeking and is there a trend for new outlets opening or are things on the decline?

Looking at potential investments in the area, do they match your expectations from your searches on the internet? What is the typical condition and level of refurbishment of buildings in the area? Do properties show signs of being comparatively well looked after by owners and residents? The state of the communal areas of properties and the surrounding land can be a good indication of this. On an individual property level, are the means of access to the building (if multi-family) well-secured or can passers-by gain access easily? This may sound trivial, but I would consider it to be a very telling signal of the attentiveness of owners and residents. This is of particular issue if the property is located in an area that is frequented during the evenings at pub, clubs and the like.

Once you have done this work, and you are content to proceed, you will need to engage with local sources to take your work right down to potential investable objects. In doing so you will:

• Refine your knowledge down to the micro-location level.
• View example properties that meet your objectives.
• Determine what tenant sector(s) are serviced in your area of choice and the current level of demand.
• Evaluate the typical demand for tenancies in the area and average void periods.
• Decide if the property can be effectively managed, particularly if you are remote from the investment.
• Gain an indication as to your ability to finance the investment, if you seek finance locally.
• Determine the costs associated with the purchase and management of the investment.

At this stage you will be working with a number of people on the ground, all who hold the keys to this final aspect of your search but will be making a charge for their services in some way. More about this crucial people dimension in Chapter 5.

Let's leave the idea of the property search there for now. We need to get some more tools together before we can go into any further detail. Hopefully, already you have seen the kind of work you as a property investor will be doing to make your investments and get ahead of the pack. It is this work, before any purchase is made, that will determine if you are successful to the greatest extent.

Activity 3

Carry out stage 1 of the location hunt. If you already have a location in mind, try to evaluate the area from a fresh perspective using the ideas in this chapter. Try to come up with a number of potential locations that you could take forward to stage 2 of the location hunt. Now keep these locations in mind as you read on.

Next Chapter - Evaluating and Securing an Investment