What is the Best Way to Work Out Rental Demand for a Given Area?
Rental demand in a given area is a relatively simple thing to calculate yet most property investors skip this essential step. Today Rob talks about how to use Rightmove, Zoopla and SpareRoom.co.uk to identify supply and demand in the location in which you're looking to invest so that you can be confident that your buy to lets won't ever stand vacant.
The Question
Hello. Welcome to Property Investments UK. Today we're going to be looking at a client's question. This one is regarding how to best work out rental demand which is to say how do you work out if a property is going to be popular when you come to rent it out.
The Question Is...
"Hi, Rob. Hope you're well. Just a quick question. What is the best way to work out rental demand?"
There are two ways to determine rental demand by area depending on the type of property you are looking to invest in. HMOs (read about the cases for and against investing in houses in multiple occupation, here) and single-lets are very different and require different approaches when it comes to trying to calculate rental demand in any given area.
Rental Demand for Single-Lets
The first thing to do when checking rental demand in an area is to check how many listings there are in that area and also how long they've been on the market for. If a property has been on the market for a long time available to let, there might be something wrong with that property or it might be an indication that the area has too much supply and not enough demand.
If it is the case that the area you are looking into is oversaturated with rental properties then it might be that you decide that this isn't the best location in which to invest. Or you might choose to compete in that area by providing something a bit different. For instance, you could do your property up to a higher standard to make sure that it is rented over and above anybody else's.
How To Work Out Rental Yield For A Buy To Let Investment
For more information, you should have a look at our other article on how you should be looking at rental yield.
Using Rightmove and Zoopla
So step one is to see how many properties are live (available to rent) in an area and determine how long they've been on the market but you shouldn't stop there. It's also good to have a look at properties that are already tenanted or let.
This brings us to Rightmove and Zoopla. These are the two main property portals and ones that as a property investor you're probably using on a daily basis. With either site, you can apply filters to show you which properties have a let-agreement in place.
Comparing Live With Let-Agreed Property
So, whether you are looking at rental demand in Manchester (Manchester being my area of choice), London or Liverpool, whatever the location may be, go to that area tick "Property" and "Let Agreed" and you will get an indication of how active the rental market is in that area. You're looking at numbers. If you are seeing 50 property listings and only 2 of those have been let out, then maybe there's a bit too much supply. Likewise, if you are seeing 50 listings and 20, 30 or 40 of those are let agreed upon, then you can be more confident that it's a more high-demand, buoyant area.
How Long Has The Property Been On The Market?
Rightmove and Zoopla will also show you how long a listing has been live and when it first came on the market. For example, if you're checking the listings in March and a listing was posted on the 1st or 2nd of January, you know it's been on the market for a couple of months. That could be an indication that the market in that area isn't that buoyant. As we said earlier, it might also be a problem with that particular property, or with the description, the photos, or the type of listing that it is. So you need to look at a number of different properties to try and see if the problem lies with the location. If lots of properties have been on the market for a while then you know that there isn't much demand in that area.
Obviously, the key thing to look for is the lowest listing time possible, so if you're in a very buoyant area those properties will be coming on the market and then getting rented out quickly. If they're only on the market for a couple of days, perfect. If it's a couple of weeks, that's generally okay (and true for most active markets, in most locations in the UK). If there are a lot of properties that have been listed for a couple of months then that's probably an indication that there isn't an active rental market in that area.
Rental Demand for HMOs
When it comes to HMOs we use different property portals. So Rightmove and Zoopla are fantastic for straightforward vanilla buy-to-lets and for checking rental demand for properties in this category. However, the majority of listings for HMOs, shared accommodation and individual rooms are going to be on a different website. At the moment it is SpareRoom that dominates this market.
SpareRoom.co.uk
Looking at rental demand using SpareRoom is similar to using Rightmove and Zoopla. You look for the level of listings, the demand and supply in the areas your searching and you check how long listings have been live. Just follow the same process, the only difference is that it's a different portal.