How We Select Properties – Part One
By Suhail Nawaz – Chief House Hunter at The House Crowd
To tell you a little about myself, I have an MBA and am a surveyor with over 20 years experience in sourcing, developing and renting property for my family’s property business. Over that time, I have seen the property market rise and fall and rise again and along the way have experienced the the good, the bad and the ugly of the property investment world.
I was one of the founding directors of The House Crowd and over the last few years have sourced over £14M worth of property for House Crowd Investors.
Over the next two articles I intend to explain how we select the properties and also answer some questions which are frequently asked by our investors.
In this first article I will be explaining the following:
- Giving Our Investors What They Want
- Income v Capital Growth
- Development Deals
Part 2 will detail the following topics – you can read that by clicking on the “next post” link at the bottom of the page.
- Capital growth due to market forces
- Off-Plan/New Build Investments
- What the future holds
Since we started The House Crowd, we have also (through the SPV structure) been the team behind most of the property investments that you can select via our website. The reason for that is Frazer and I have been active in the property investment world for many many years and have built up expertise and contacts in certain geographical areas and are able to offer properties that perform well above average.
I am a strong believer in focussing on what you know well if you want to achieve optimum results. Everyone makes mistakes, but the more you know about property and the particular niche or niches you operate in, the less likely it is that you will make a major mistake.
Hopefully, you learn from the mistakes you make so they are not repeated and that is how we have built up our knowledge and a level of expertise in any area where we now invest or, as we have expanded we now work with trusted partners who have that expertise and a proven track record.
In fact, the business has now grown to a level where we simply can’t cope with sourcing sufficient numbers of properties ourselves to cater for the demand of The House Crowd community; even if we bought every worthwhile investment property in the original areas we focussed on, it would not be enough. It has therefore become necessary for us to expand upon these areas and work with trusted partners in different geographical locations and also source a variety of different types of properties to cater for what our investors want.
We have recently started to work on a cautious basis with such third parties and whenever we do so we conduct careful due diligence to make sure that they are reputable people with a good track record and that what they are offering represents a sound investment opportunity.
So the key question is whether we are selecting properties ourselves or working with third parties, what is our criteria for selecting properties that are promoted via our website.
Giving Our Investors What They Want
Frazer and I agree, that from a personal perspective, we will focus largely on professional HMOs/apartment blocks as the best way to go moving forward. That has been the basis of my own personal investment strategy over the last two decades. The reason being that the economics and changing demographics support our belief that house sharing/renting small flats will become increasingly popular and, with both types of property, you are mitigating your risks by having multiple tenants – it means that whilst you will have some vacancies along the way, the property, once it is up and running, will usually be full or almost full.
But different investors want different things and everyone has slightly different criteria. Some like certain areas or cities, some like HMOs, some don’t, some like long term buy to let and others prefer a short term develop and sell or flipping model.
We recognise the need to provide what people want and we try to offer offer a variety of different types of investment with different investment periods provided we believe there is sound reason for investing in the property (even if we would not choose to invest in it ourselves as it doesn’t fit our own personal criteria).
People are generally investing to provide for their financial security/wealth and they do that either by investing primarily for income or for capital growth or a combination of the two.
Income v Capital Growth
I strongly believe that the most sensible, lowest risk strategy is to invest in properties that provide cash-flow. It is the basis of most of the investments we offer. I feel it is a real investment if it puts actual money into your pocket rather than trusting a rising market to deliver your return.
If you invest for capital growth, which can be very profitable, it is entirely speculative and is largely dependent upon forces beyond your (or our) control.
It is one reason why we are hesitant to offer Buy 2 Let deals in the South East (although we recognise that some investors would like to invest in this region so we will not rule it out). The trouble is by the time you have deducted management costs, maintenance and repair costs from the rental income, there will be very little, if anything, left in the way of cash flow. If the market rises and you sell at the right time – that’s great, but it’s a big risk and you have no way of guaranteeing that. If you are subsidising low yield properties to any degree (service charges/ maintenance/repairs etc) then there is only a finite number you can buy before your available resources are used up. In short, it can be a recipe for disaster.
Conversely, providing every property you buy is making a profit every month you can continue to buy more and more properties ad infinitum and become wealthier and wealthier.
Before we buy any rental property, we consider the location very carefully. Strong rental demand is the deciding factor. Typically, when we are dealing at the lower end of the market, the rental values that can be achieved are supported by the Local Housing Authority (LHA) rates that are payable. This means we know exactly what rent we can get should we choose to rent to a housing benefit tenant.
Within any Local Housing Authority’s defined geographical area there are locations where the property prices are lower than the surrounding areas and yet the rents payable by the council are the same. By applying this knowledge, we can achieve higher than average yields.
By concentrating on certain pockets where we have built up contacts and our reputation, we are able to access opportunities that other investors will not be able to. In this way, we are frequently offered off-market deals where the seller is motivated to sell quickly due to their personal circumstances and we are able to acquire the property at a very keen price.
To read Part 2 just click on “next post” below on the right.