Property Market Insights - April 2022

A question that crops up more and more nowadays is am I paying too much for a property deal.  Since the middle of 2020, property prices nationally have begun to creep upwards at a rate not seen since pre-2008.

For property investors, this has severely impacted many of our strategies, especially if we are looking to:

·      Buy below market value

·      Buy, refurbish and refinance

·      Change the use of a building

·      Focussed on buying direct to vendor

The older methods of buying from ‘motivated sellers’ have been supplanted by agents targeting these people and copying our techniques, in a rush to list and sell properties.

Furthermore, the time taken for an average property to sell have plummeted.  Many investors actively sourcing property report to our business that properties are selling in days, or even hours from first listing.  The race just to get a viewing is now a common problem

All this challenge isn’t going away - our latest Ultimate Landlord Research points to yet more growth in demand, pressure on stock availability and scarcity of leads.  And I haven’t even mentioned more general inflation in the wider economy.

Is property too expensive now?

This question can be answer with wither a yes, or a no, depending on where and what you are buying.

Whilst the national press and many media outlets shout about unaffordability, the truth is that in many areas properties are quite affordable.  This is not my opinion.

Focussing on areas where the average property costs less for the average household to buy is how you answer the question. 

Affordability = Average House Price / Average Household income

The resulting figure varies massively, even in regions and towns.  Some areas are highly affordable, with higher average incomes meaning people can afford to pay more for property.  But property prices don’t reflect this.

Take a look at this data from our software, Ultimate Property Dashboard which anyone can access.  Firstly, in postcode CH5 for a standard 3 bed property which costs on average £209,000

Rent is, on average, 25% of an average household’s monthly income.  An average property to buy is roughly 5.4x an average household’s annual income.  Now let us look somewhere else

Here is another location, this time SA18.  Again, an average 3-bedroom house, this time on average costs £201,000:

Rent is, on average still 25% of an average household monthly income, but average purchase prices are 6.3x the average annual income.

What does this tell us?  Well, it (in relative terms) costs less for people to buy a property in CH5, despite it being more expensive.

Many areas have quite a variation in TRUE AFFORDABILITY, and many investors are using software like Ultimate Property Dashboard to uncover areas of good relative affordability.  Incidentally, these are also the areas with the highest growth potential.

Why can’t I find a good deal to add value to

If your strategy involves improving a property (many do), another recent development is a widening of property price ranges in many areas.  This new phenomenon is a MASSIVE OPPORTUNITY for us to capitalise upon.

Post pandemic, many people have eaten into their savings and as such have less disposable funds for refurbishing a tired property.  In many areas of the UK, this means demand for ‘turn key’ ready to move into properties has risen sharply, pushing up local average prices.  However, tired and distressed properties in many areas have not risen, widening the gap between good and bad properties.  The larger the gap, the larger the potential profit. 

Sadly, many investors still fixate on money off or BMV deals.  The unique situation today is that this is less necessary to generate added value.  Indeed, in a great many postcodes, paying full asking price is a good idea for many properties, such is the gap or spread of pricing.

This area has an average asking price of £201,000 but a range of £145,000 to £293,000.  Improving a poor property to the value of an average property can potentially add £56,000 in value (average asking price – lowest price of the majority of property)

Now in this example the average asking price is a lot lower £167,000.  Yet the majority of properties range from £135,000 to £200,000, so my potential value add is only £32,000. 

Imagine if the refurbishment cost was the same in both instances.  You would make more money and recycle more cash on the more expensive purchase.  Yet the common process for many is to buy in the cheaper area and struggle trying to get more money off!

You can work out the spread of prices by measuring prices in your target areas or automate for any or all postcode areas by using Ultimate Property Dashboard. By the way, all of the data in this article is taken directly from the software.

What about rent demand?

This is another question I find many people struggle to answer accurately.  Rent inflation is a great barometer for future house prices.  To really use this data well, you need to track average asking rents in your target areas and, most cortically, how they are changing.  Believe me, there are hundreds of postcode areas where rents have stagnated or are falling.

I track rents for every postcode and many property types every month and look for spikes in prices.  Remember this important rule:

House price growth often follows rental price growth

By tracking and acting on sudden rent growth, you can ensure you have an inflating cashflow, lower void period and, critically, better asset appreciation.

The truth in all of this is that house prices are too high in some areas.  But in many areas they are not and have huge potential for growth.  What type of areas are you investing in? 

Following these simple points help you to maximise the profitability of your investments and leverage your skills, training and experience to their optimum efficiency.  If you don’t use data and insights now, you’ll be missing out on huge swathes of opportunity that exists in today’s buoyant market

If you want to automate much of what I have explained above, a good starting point is to check out Ultimate Property Dashboard.

All the best,

John