It's the buy-to-letter's Holy Grail, the property hot spot. Finding one makes dealing with slippery estate agents, hapless tenants and idiotic builders all worth it. (I’m only joking about the builders and tenants.) The estate agents, meanwhile, are as slippery as they come, and if they sense that you are reaching for your chequebook, they will suggest that anything is, can be or should be a hot spot.
What is a hot spot? Well, it’s a place where renters are plentiful and property prices are low. Then the prices become high, quite quickly. And the place is no longer a hot spot, but a prime location. The key is to find it before everyone else does. Islington in London, dear reader, was once a hot spot. Tuscany was a hot spot. Hampstead was a hot spot. No, Hampstead was never a hot spot. It was madly expensive even in the days of John Keats. However, anyone who invested in Islington or Tuscany in the 1980s must be laughing their head off now. Which explains why Cherie Blair was so cheesed off when she had to move out of N1 to No 10.
So, how to find the hot spot de nos jours? Having spoken to the experts, here is my list of Hot Spot Tips.
First, go for fantastic rental yields — in other words, the percentage of the rental value over the value of the property (excluding your mortgage repayments).
“I can tell you where I am buying,” says Ajay Ahuja, hot-spot guru and founder of PropertyHotspots.net, with a portfolio of 150 flats, all in hot spots. “I am buying in Ayrshire, Lanarkshire and Aberdeenshire. The yields are great!” Ahuja says he can get a 12% yield on a two-bed house there: he buys it for £30,000 and rents it out for £300 a month. “England has yields of 3%-6% and Wales has 8%. Scotland is the only place with double-digit yields, although I haven’t been to Northern Ireland yet.” You should, mate.
Go for places where other investors are flocking. According to Ahuja, other investors have differing yield thresholds, so his £30,000 house might be attractive to another investor working on 10% yields, who will buy it off you for £36,000.
Look for new business ventures. Citigroup’s imminent arrival in Belfast has caused a flurry of buying activity as people anticipate the arrival of dozens of people in smart suits. Bankers are ideal rental fodder and will keep your mortgage paid quite happily while the capital value of your flat goes up. Airport terminals are another big employer, so while the mooted expansion of Stansted may be a disaster for the local wildlife, it could be a triumph for investors.
Look for the emergence of transport hubs. The Heathrow Express into Paddington and the new Eurostar link to St Pancras have both caused their respective locations to hot up no end.
“If you track any main capital uplift over recent years, where prices have shown the greatest increase, it coincides with improvements in transport or other infrastructure,” says David Salvi, of estate agency Hurford Salvi Carr. “Because of its chequered history, prices in King’s Cross have never gone above £500 per sq ft. They are now up to £550 per sq ft.”
His London hot spots? Marylebone (near Paddington), Regent Quarter in King’s Cross and Limehouse Basin, which is benefiting from the huge surge in employment at Canary Wharf.
Go for blue-collar areas yet to have a yuppie explosion, says hot-spot expert Nick Rampley-Sturgeon, “because the rents are better. I would recommend Pudsey and Rodley in (West) Yorkshire, small towns between Leeds and Bradford. They will see capital growth because they are cheaper than the big city centres but still accessible to them.”
Get the map out and look for places near motorway junctions. “The M62 corridor between Manchester and Leeds is very attractive: there are some very good Barratt Homes-type properties there, which anyone working in the nearby cities might want,” says Rampley-Sturgeon.
Look for rural places near pricey urban centres. Perth, for example, has beautiful countryside and is within commuting distance of Edinburgh. Equally, on the south coast, Folkestone is cheaper than, but accessible to, nearby Brighton.
Develop a nose for the unfashionable: today’s chav is tomorrow’s des res. Hackney and Dalston in London are about 20% cheaper than Holborn and Clerkenwell, but prices in E8 might be on the move with the extension of the East London line. Essex and north Kent might be equally sexy.
“I would hot-spot Sittingbourne in Kent,” says east London queen Barbara Goldsmith. “People still turn up their noses about it, which is a great sign. Sittingbourne has good connections to London and good schools. It has excellent potential for growth.”
Once you find your hot spot, watch out for dodgy cold spots in it. “You have to get to know Sittingbourne well,” advises Goldsmith, “unlike, say, a hot spot such as Stratford East, where the whole place is hot, and people are fighting for the few properties that come on the market.”
She advises investors to avoid property around Sittingbourne’s rundown industrial areas and huge council estates. It’s quite difficult to woo a rental suit to a rubbish-strewn wasteland, where the local amenities consist of three beaten-up children’s swings and a roundabout.
Redevelop. If you feel nervous investing in something outside a prime location, go for a dump within it. But investigate before you celebrate: there is usually a reason for the price.
Last week, I went to a closed-down pub in an immaculate EC1 Georgian terrace, just up the road from St Pancras. My architect said he could easily turn it into seven flats, rendering vast profits and smiles all round. Sadly, after a single call to a council bod, I discovered planning permission for change of use would not be forthcoming. Ever. Bang went my big idea.
Of course, timing is vital. Your chosen hot spot needs to have already started to heat up, not in 10 years’ time. Is it a good time to start looking? It might be. “Since 2001, prices have been static,” says Salvi. “This year, it has been frightening. Sale prices in central London have already risen by 5%. There is every indication they could go up this year by 15%.”
But the caveat is that the more dramatic the capital gain, the more risky the venture. Hot-spotters must be happy with risk, since only by sticking your neck out and investing in somewhere that is “on the make” will you get a bargain with great capital growth.
If you think venturing into hot-spot land means you won’t sleep well at night, then stick to Hampstead.
