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Property investors have two main objectives: generating rental income and investing in an area with huge capital growth potential. Essentially, they are the two ways you can make money as an investor. Rental yields will provide you with a consistent cash flow of rental income. Capital growth, on the other hand, is the profit you make when you come to sell the investment. Especially considering the house price growth we have seen over the past 10 years; capital growth can be extremely profitable.
The key, however, is to be able to spot up-and-coming areas. If you choose wisely, you could buy a property at its lowest price, sit back, and watch it increase in price. Location is everything. Smart investors are able to spot trends, act quickly, and maximise the potential growth of a property before the market becomes saturated. Here are some of our top tips to be able to spot an area with great capital growth potential:
One of the most important factors to attract buyers and tenants of all ages is transportation and accessibility. People will always pay more for convenience; therefore, good transportation links naturally add value to a home. We would advise looking for regions with plans to improve local transportation, as this indicates possibilities for regeneration and expansion.
Of course, the HS2 is a prime example. The Guardian predict that a property located within a 10–15-minute walk of a HS2 station could see a 30-60% price increase upon completion. According to Knight Frank, in just two years, the ‘HS2 Effect’ has resulted in a 14% increase in house prices. Those who buy property now can expect huge capital growth in the coming years as HS2 comes to fruition.
The creation of the Elizabeth Line is an example of the ‘Crossrail Effect’. Building works began on the Elizabeth Line in 2016, and the long-awaited opening has been pushed back to 2022. It will run for more than 60 miles, from Reading and Heathrow in the west to Shenfield and Abbey Wood in the east, via central tunnels. It will stop at 41 accessible stations, 10 of which will be brand new and 30 of which will be refurbished and will serve around 200 million people each year. According to Zoopla, since building works started on the Elizabeth in 2016, properties located along the line are now worth 54% more than the average property in England.
If you see a skyline filled with cranes, you can be confident the area is undergoing some large-scale regeneration projects. A property within proximity to a mammoth regeneration project is naturally going to reap the benefits. Instantly, the area becomes a more attractive place to live and work. Businesses and tenants will be drawn to the area which boosts demand and feeds into the economy. We would advise conducting your due diligence into any regeneration project, to get a clear idea of the capital growth potential. Some key locations are Liverpool, Manchester, and Birmingham.
Population growth, especially a young population, is an indicator of a growing city. Places with a high proportion of young people will experience the highest house price growth. The majority of people will be young professionals – the prime rental demographic. Young professionals also value being nearby to transport links and amenities. Thus, bringing more business into the area as they can be certain of demand. If an area contains a growing young population, it is likely to undergo regeneration to cater for the younger market. Less desirable areas will morph into urban hotspots. Thus, increasing their value.
If a large employer is looking to move to the area, this will certainly drive up demand. Young professionals will also be looking to move to areas with job prospects and new opportunities. Areas that are attracting new business will bring in more money to the economy. Not only does this attract demand, but the area will become wealthier. This is key to attracting investment. Additionally, this is great news for buy-to-let investors as more affluent areas will be able to afford higher rents. Overall, an area with growing employment opportunities is going to increase demand and boost the economy.
In many ways, these factors are all interconnected. If an area undergoes regeneration, the population will grow, which will attract new businesses, and so forth. Therefore, an area with capital growth potential will often have the perfect mix of all these factors. Cities such as Manchester, Leeds, and Birmingham, are all benefitting from capital appreciation as we speak. Those that invested in these cities 10 years ago will be experiencing property price growth between 40-50%.
If you are looking for an emerging property location, we would advise looking towards cities that are on the rise. In high profile locations such as London, prices in these cities are often unattainable for many first-time investors. That is why we recommend looking in growing cities where prices are much more affordable, but the capital growth potential is still staggeringly high. Areas like Wakefield, Sheffield, and Hull are all prime examples of cities that tick all the criteria for showing huge capital growth potential.
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