Property Market Insights- September 2022

In the past, many of us learned that we could recycle most of our money when buying property by:

1.  Negotiating money off the purchase price of properties and then

2.  Adding value through refurbishment to increase the property’s end value of GDV. 

This combination of buying at a discount and adding value worked very well for many investors.

The trouble today is that a lot of investors are now finding it harder to get that first part – a discount off the asking price for a property.

This new issue has caused many, many investors to stall and stop.  If you can’t get money off, the deal won’t stack, right?  Well, in today’s market the answer is categorically no.  The way we used to see and do things has changed radically and here’s exactly why getting money off is much less of an issue than people think.

1.   Find areas and properties growing fastest

Just a few years ago, the property market grew at around 3%, meaning that 12 months after buying a property we could expect it to grow in value by about 3%. 

Fast forward to today, and that number is now closer to 10%.

That means that for every £100,000 of property we own, we are likely to see it increase in value by £10,000 rather than £3,000 as before.

But some areas perform better than others, and grow faster than the average.  Sometime increasing by twice as much as the average growth.

So, back a few years ago, a good area may grow by, say 6%, double the average 3%.  Today, that same scenario means a high growth area may grow by 20%, double the average 10%.  This has a massive impact on deals we buy.  Let’s look at this side by side:

Great.  In an inflationary market our capital appreciation is £15,000 whereas it was only £4,500 before

However, what if the demand is high and the area is growing in value at double the national rate(?):

Well, in today’s market, a high growth area can make £30,000 compared to £9,000 for the same high demand property a few years ago.

This is why buying in high demand and high growth areas is so important.  Every region in the UK right now has higher than average demand postcode areas.  Knowing these, and focussing on them can yield significantly higher growth and profit, especially when seeking money out on delas at a later stage.

But how do you find these areas.  I like to simply glance at whether a postcode is ahead of behind other postcodes by using RAG reports comparing one postcode against others in the area like this:

Here, asking price are up 22.7% and the blue arrow in the green section means that growth is better than other local postcodes.  Simple!

2.  Pay full market value

This must sound silly to many of us, and I know we all love a deal, but right now, walking away from deals because they are not below market value is even more silly.  The thing is, why ask for money off when you can make so much money on high growth properties.  Again, let’s explore the numbers and look at getting money off versus buying a high growth property.

Old market high growth potential property getting 10% off asking price:

New market high growth potential property getting 0% off asking price (paying full market value)

This is why many people are paying full asking price.  The potential inflation in the value of the property is greater than the typical discount on asking price many used to get.

Of course, you can still negotiate money off, but too few investors look at the growth they can achieve simply by buying into these higher demand and growth areas 

3.  Understand the gap between purchase and end value for the best all money our deals

This is another really fascinating part of strategy and planning that is either missed completely or misunderstood by many of us.

Whilst we must, of course, make sure we have the budget and finance in place for investments, we also must ensure the increase in value of a property by spending money on it is maximised

The critical point here is the % difference between a poor quality and a good quality property varies wildly in different areas. 

In some postcodes, the price gaps between a dated and tired and a newly modernised property is narrow, yet in others it is very wide.

If you do wish to recycle funds, you absolutely must measure this gap.  This gap is you budget for a refurbishment and how much money you can make and return back to yourself after refinance.

When coupled with points one and two, you can have a very robust and effective procurement strategy for your business. 

Look at these two examples taken straight from my property software, Ultimate Property Dashboard: 

Most people focus on the average asking price.  SA6 is marginally cheaper (£133,000 average ask) than SA5 (£141,000 average ask)  for a 2 bedroom house.  Guess where investors are trying to buy more properties!

However, the more expensive SA5 has a wider range of prices.  A good property may be worth up to £159,000 in SA5, whereas in SA6 it is likely to top out at £145,000.  This £14,000 difference can make a huge difference to a deal, and make the more expensive area more viable for a typical buy, refurbish and refinance.

In Ultimate Property Dashboard, you also see how wide the gap is between the lower end and top end of the market.  The wider the gap, the more money can be made.  Some areas have larger gaps for different property types.  Let’s look at these two postcodes again but now look at 3 bedroom property:

Here, the gaps between bad (SA5 £130,000, SA6 £140,000) and good (SA5 £211,000, SA6 £243,000) are much wider.  A Buy Refurbish and Refinance strategy in these postcodes with all money out may be easier to achieve on 3 bedroom properties.

Furthermore, the gap is £103,000 in SA6 versus £81,000 in SA5. 

Most investors in this area are actively searching for 2 bed properties in the cheaper SA6 (with a lot of competition).  They would be better off trying to buy a 2 bed in SA5 if they want all money out deals.

Add furthermore, they could make and recycle an awful lot more by buying a 3 bedroom property in SA6.  Yet dozens and dozens of people all over the UK miss this point in their due diligence.

This level of detail, and understanding it will help you to make better choices around areas and property types to invest in all over the UK.

2022 is a really exciting time to be investing in property.  In our industry, we are spoilt for data but it is exceptionally difficult to access and interpret.  I’m on a mission to help with this through my work and reporting across the industry, and you can access this data today.  The data in this article and the report extracts are taken live from Ultimate Property Dashboard.

John Penquet

CEO and Founder

Ultimate Property Dashboard

Get John’s latest Market Data and see a free demonstration of Ultimate Property Dashboard using this link or QR code: 

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