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  • Property-a-holics

    How do you assess tenant demand before you invest?

    Before you buy your next investment property, how do know there are tenants out there who want to rent your place?
    One of the ways I check out tenant demand is to research sites like spareroom and gumtree. These sites are particularly useful if you rent out rooms or 1/2 bed apartments. The tenants advertise themselves on the site, explaining exactly what they are looking for and what they are prepared to pay.
    It also gives you valuable insight into the type of tenants you can expect in your area so you can tailor your property to meet their needs.
    As that well-known philosopher Mr Nick Tadd says ' identify the demand and create the supply' Wise words indeed.
    How do other landlords research the demand for their property, particularly if you are investing in an area for the first time? If you always invest in the same place, you probably know your market. But how do you know there is still demand out there?
    Any thoughts?
    Adrian
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    "Philosopher"!!! Wow.
    "Man with hole in pocket, feels cocky all day!"
    Find the demand then create a supply. (Firstly lets all understand that the question is how to find demand. In this answer I am going to talk about a particular product/tactic to explain how I find demand for this particular product/tactic. However, this same method can be used for all types of “strategies” up to and including Holiday lets.)
    I think the best approach is to understand that we (owners of property) are not Investors and loosely can be titled Landlords, moreover, we are "service providers", and as service providers it is our duty to understand the "Client" first.
    I've always found that before we start on the web, newspapers, agents or the like, we need to understand the demographic of who rents in the first place. (In Guildford)
    For example: The age group 20 - 35 (with a reasonable job/car etc) what, typically, would they rent?
    I think it is fair to say that they might be renting 1or 2 bed flats, therefore, we instantly have an understanding of who they are and what amount of money they are prepared to spend. Moreover, we also know where they might be.
    Maths: (In Guildford) A 1 bed flat will cost around £700 ish PCM on top of that you will have Council tax at £100 PCM, utilities £50 PCM, broadband £10PCM, TV £10 (ish) PCM, Sky £20 PCM. Total £890 PCM
    Maths: (In Guildford) A 2 bed flat will cost around £900 ish PCM, now if you take all the other bill as stated before. Total £1090 PCM
    So if they (Client) had a 1 bed flat it would cost them £890 PCM or only £545 PCM if they share.
    With this info I know how much they are willing to spend and that most of them are willing to share, more importantly I can take a wild stab at understanding where they are. In return this tells me what to look for.
    In this instance 4 bed houses with a dining room that can be converted into a 5th bedroom.
    Maths: 4 bed house in Guildford (I know this can vary but we need some figures to start with) £400,000. 75% LTV (standard BTL product @ 5.29%( I know this can change but we need some figures to start with )), therefore, it will cost £1587 MMP.
    Add the Utilities and the total cost is £1777 PCM. (I’m sure there are other costs that will come up, but remember this is an exercise in finding demand).
    If you rent out each room at £500 PCM all in, you have a very powerful incentive to pull this demographic of Client away from Flats and into you “stock” via using science (better living conditions) and maths (financial incentive), and your better off by £723 PCM!
    To conclude: In this instance our demand is/are young professionals aged between 20 – 35 that have jobs either in business/retail parks that like to live near town and would benefit from being in a house with a garage/garden/drive that a flat and that you can offer a financial incentive to.
    One of the best ways we have “tested” this is by getting hold of local agents and asking them if there is a glut of flats in the area (based on the above, most “new towns” would answer yes) in which case there, usually, is a strong argument for you to “tout” your wares. Or basic “split testing” via Gumtree etc.
    In this instance I have covered an understanding of how to spot the demand that we (Vanessa and I) apply. However, I think in this day and age and based on the above, the demand is there but to be a winner it’s all about your supply … after all we’re just service providers.
    Nick

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    general operations director, site owner and moderator - propertytribes.com