Finding new property investment opportunities should, in theory, be easier than ever with success stories, market data and industry insights available in any format you could wish for, from LinkedIn posts to podcasts.
Learning from these sources is vital as it can expand an investor's knowledge, helping them capitalise on an opportunity when it presents itself. The problem is, unfortunately, once part-time investors have access to this information, the opportunity may have already passed.
It would be easy to assume the gap part-time investors are contending with is the capital full-time investors have at their disposal to capitalise on an opportunity, but it's actually the information itself, and how early it arrives.
A full-time investor will have already learned of an emerging local market or a major redevelopment with implications for their portfolio from the relationships they have built within the industry. By the time it reaches a podcast or a market report, they have had months to act on it.
That is a more encouraging position than it first appears, as these relationships can be built quickly if it's clear the investor is genuinely willing to learn, which makes this a gap a part-time investor can actually close.
A market asking more of investors
Historically, many investors could purchase a property locally, rely on rental income to cover mortgage payments, hold the asset over the long term and benefit from rising property values. That simple approach is becoming less viable each year.
Research shows that 64% of professional landlords believe the sector is becoming more professionalised, while a significant proportion of part-time landlords are considering exiting altogether, largely triggered by the additional admin work and regulations introduced by the Renters Rights Act.
This shift in the market won't create an abundance of opportunity for part-time investors but instead will allow investors with enough time and resources, or a management team in place, to grow their portfolios. This is where the aforementioned industry relationships come into play.
To identify alternative, specialised opportunities, you could speak to a quantity surveyor, for example, and you may learn that semi-commercial HMOs, commercial co-working spaces and MUFBs are emerging as popular investments.
Asking prices are not market values
The information gap doesn't only affect where an investor finds opportunities. It affects how accurately they can value them.
Part-time investors typically source opportunities from property portals like Rightmove or Zoopla. But sellers are currently listing properties on average, 11.6% above market value.
For the average home buyer, this isn't a major issue, but for investors looking to add value to a property, these inflated figures pose a risk worth considering. Falling into this value trap can waste time and effort, as investors basing their figures on the asking price start the process and realise the purchase price isn't a true reflection of the market value.
Full-time investors are better protected here, and not because they are more cautious. Ongoing conversations with lenders, valuers, brokers and quantity surveyors give them a clearer view of true market values, lender sentiment and potential exit values before they ever view a property.
Ahead of the mainstream
The examples I covered earlier weren't hypothetical. In a single week, informal conversations with two quantity surveyors and a valuer covered those emerging asset classes, and went considerably further:
- Two regional markets experiencing declining activity
- Two property types seeing significant demand increases
- A major development likely to influence future housing demand
- Early insight into a trialled non-standard construction technique that could materially reduce build costs and tackle the joinery labour shortage
- A growing caution around income-based valuations, driven by rent tribunals
None of these points is hidden, and many will reach a wider audience over the next year. The difference is that a professional network puts you in front of information while it is still evolving, rather than once it has already played out.
If a handful of casual conversations can surface that much, consider the position of an investor having dozens of those discussions every week.
The last of these points deserves elaborating on, because it is the perfect example of an evolving situation. We haven't yet seen the full impact, but it will certainly play a big role in how lenders value properties on an investment basis.
A value based on the income of a property could see change as a result of the rent tribunals, introduced alongside the Renters Rights Act. A tenant can dispute their rent, and it may rule that it should be reduced.
These tribunals are taking place, but we are yet to see the impact this could have. It poses a genuine concern for anyone who has refinanced against what was once guaranteed income. For an investor relying on that income to service borrowing or to support the next acquisition, it may be imperative to learn of the impact and adjust their portfolio accordingly.
Next steps
If I could offer investors one piece of advice, it wouldn't be to buy in a particular city or pursue a specific strategy.
It would be to keep reading the market reports, looking into the data, and then do everything in their power to build meaningful industry relationships.
The reports will tell you where the market is heading. But conversations with a surveyor, broker, lender or fellow investor will tell you whether the deal in front of you stacks up.
