| There has been a lot written about winning | | | | Bridgford with lowly Bulwell over an 11 year |
| property investment strategies. After many | | | | period. Whilst prices in Bulwell have risen by a |
| years of investing I'm convinced that there are | | | | respectable 3 times in West Bridgford they have |
| only two strategies that a property investor | | | | shot up by over 3.5 times. |
| should employ. | | | | Simply put, at the end of the 11 years for ever |
| These strategies are basic, but fundamental to | | | | £100 invested in property in Bulwell the |
| your investment selection. | | | | same amount invested in property in West |
| When evaluating any investment property you | | | | Bridgford would be worth £117. |
| should ensure that it clearly meets one or the | | | | It's all about demand and supply and whilst |
| other criteria. In doing this you will ensure that | | | | demand keeps rising supply is largely fixed. |
| you have a clear focus and investment rationale. | | | | Therefore if you want to maximise your |
| My winning strategies | | | | long-term capital growth, buy a trophy asset. Tips |
| The two winning strategies relate to the types of | | | | on buying a trophy asset are: |
| property you are investing in and the relationship | | | | * Find the best areas in your locality; they will |
| between capital growth and income. | | | | have the best schools, the nicest parks the most |
| We are all aware that you derive a return form | | | | affluent inhabitants. |
| property investment in two ways. | | | | * Always buy an older property with as much |
| Firstly, through capital appreciation and secondly | | | | character as you can but don't worry if there are |
| from rental income. | | | | no or few period interior features. These can |
| Property investment is practically unique amongst | | | | always be replaced or added to. |
| investment products in that it is part funded by | | | | * Remember your yields will be low. This is |
| borrowing; in other words you employ loan capital | | | | because capital values are likely to be high. Try to |
| to effect your investment. Traditionally property | | | | maximise incomes where possible by buying |
| investors have utilised rental income generated | | | | smaller units which tend to generate more rent |
| from rent to repay their debt leaving them with | | | | per sq metre. |
| an income and a property asset at the end of | | | | * Because your aim is capital growth and your |
| the loan. | | | | income is less you will probably have to use an |
| My two winning strategies are derived from | | | | interest only mortgage and a loan to value of less |
| successfully focusing on the source of your | | | | than the maximum of 85% to enable you to |
| potential returns: capital growth or through the | | | | meet the payments from your rent. |
| maximisation of income & in order to repay | | | | CASH COWS |
| your debt. | | | | The two big downsides with 'trophy assets' are |
| The danger is that you try and do both and in so | | | | one, they are expensive. Not everybody will be |
| doing lose your investment focus thereby failing | | | | able to afford them and because of limited supply |
| to maximise your potential returns on either | | | | they are not always that available. The second is |
| count. Therefore, when considering your | | | | that they are potentially high risk, in the short to |
| investment you should first ask yourself; do I | | | | medium term. |
| want to invest in either a: | | | | This is because if there is a slump in the housing |
| * TROPHY ASSET or | | | | market, because you are relying on capital |
| * CASH COW | | | | appreciation, the source of your potential returns |
| TROPHY ASSETS | | | | will be wiped out. In the long-term though 'trophy |
| A 'trophy asset' is a term used by many | | | | assets' recover faster and more strongly but this |
| property investors to describe those properties | | | | may be of little compensation if you are nursing a |
| that everybody wants to get their hands on. | | | | large capital loss for several years. |
| Examples of these would be the Oxford Street | | | | Therefore, for most investors a 'cash cow' is |
| premises of Selfridges or the Lloyds of London | | | | more accessible and less risky. With these |
| building in central London. They are both iconic | | | | investments your primary focus is income |
| buildings, widely recognised and in prime locations, | | | | generation. It is all about an investment that will |
| which means that what ever happens to the | | | | maximise your income in relation to its cost and |
| economy or the property investment market | | | | produce the most reliable income stream. |
| there will always be strong demand for them. | | | | It's no good having a place that produces a good |
| What's this got to do with buying a residential | | | | yield when let but is empty for long stretches of |
| investment property? | | | | time. What you want is an investment that |
| You are right; the term 'trophy asset' is normally | | | | consistently brings in rent so that you can pay |
| associated with commercial property. However, | | | | down your loan. This is the primary difference |
| the principles can be directly applied to residential | | | | between this type of investment and that of the |
| investing. | | | | 'trophy asset'. Because you are not relying on the |
| All we are saying when describing a property as a | | | | capital appreciation of the asset, you are less |
| 'trophy asset' is that it is in a prime location and | | | | exposed to the risk of a market down turn. All |
| that it is a building of a unique character, both | | | | you are banking on is that the value of the |
| potential features of residential property. | | | | property does not fall and after the loan is repaid |
| If you think of where you live in the country, | | | | the asset still has a capital value; which can either |
| there will be an area, a street even which | | | | be realised through its sale or that you decide to |
| everybody aspires to live in. There might even be | | | | take your returns as rental income. |
| one house that shines out above the others. | | | | How to buy a 'cash cow' |
| These are all 'trophy assets'. | | | | * For cash cows it is the yield that is most |
| The nature of property is that each parcel of land | | | | important. Look to buy properties with the highest |
| is unique. The very spot you are currently | | | | yield and 'rentability'. |
| standing on cannot be replicated because part of | | | | * Use either a repayment loan or one with some |
| its uniqueness is its location. Applying this principle | | | | sort of repayment vehicle. Remember your |
| to property means that there are only so many | | | | primarily goal is to repay the loan. |
| trophy houses, streets and areas. The supply of | | | | * Refurbishment projects often provide ideal 'cash |
| these is largely fixed. | | | | cows' being cheaper and generating relatively high |
| Demand is however constantly growing as people | | | | yields and being very 'letable' once the project is |
| aspire to live in the best areas. The result is that | | | | complete. |
| over the long-term these area and places will | | | | Investment scenarios |
| always appreciate more in value than houses in | | | | These two strategies should give you a basis for |
| less desirable areas. Evidence of this is all over. | | | | your investment decision making. Before you |
| Look at London where prices in Kensington and | | | | make an investment make sure that you are |
| Chelsea have rocketed 20-25% in a year whilst | | | | clear on what you want either a 'trophy asset' or |
| those in less affluent areas have risen at a much | | | | 'cash cow'. |
| more pedestrian rate. Ok I know what you are | | | | For those people that are looking to buy an |
| thinking, this is London it's different here because | | | | investment that will supplement their pension |
| of billionaire Russians and city bonuses. | | | | income, then a 'cash cow' is ideal. |
| However, I bet you that the same is probably | | | | If a 'lump sum' is your objective or an asset to |
| true in your local town or city. Think of the nice | | | | pass on to your children then a 'trophy asset' |
| village, the posh part of town. I bet if you studied | | | | could well fit the bill. |
| the figures they would show that despite other | | | | Remember, either way you should always be |
| areas going up in value, these areas will have | | | | clear on your investment priorities before you |
| gone up by more and faster. | | | | start thinking about your property selection. |
| Just looking at my home town in Nottingham | | | | Any comments on this article or any other issues |
| using to compare average prices in 'posh' West | | | | raised send them to the editor@propertyhawk.co. |