Guide to property investment

Step 1

Where in Cardiff should I purchase my investment property?

Three universities, a plethora of graduates and aspiring young professionals, plus the recent extensive generation of the Cardiff Bay area and completion of St David’s 2 in the city centre, means the number of investment opportunities in Cardiff is high.

Some of the most popular areas amongst investors are below;

Regarded as one of the most successful regeneration projects in the UK, Cardiff Bay is steeped in history and is now home to thousands of people across many different housing developments. The demand for property here is strong, and returns can be excellent if the purchase price is correct and expected rental levels are realistic.

Situated in close proximity to Cardiff city centre, Cathays is the base for Cardiff University’s Cathays Park and Maindy campuses, so is home to the vast majority of Cardiff’s student population. Though they have to travel a little further, students attending the nearby Cardiff Metropolitan University, University of South Wales and ATRiuM regularly choose to live here too, such is the strong student community feel. Cardiff University has big plans for expansion and leads the way in many different areas of research, so with a seemingly unwavering demand for housing in this part of Cardiff, it's an excellent place to convert previous family homes to HMOs (Houses in Multiple Occupation) or blocks of flats.

A real mix of young professionals, families and students, Roath provides opportunity for investors to restore family homes or turn them into HMOs (Houses in Multiple Occupation). Slightly further away from their place of study for most students, it’s important to know the market demand before committing to buying anything here. That said, its close proximity to the city centre means a good, quality property in Roath will almost always attract tenants.

With high demand and limited availability due to a relatively small space, Cardiff city centre provides many opportunities for investors. There is less opportunity to develop in this part of Cardiff, but with the recent renovation of St David's 2 and the creation of Hayes Apartments and Meridian Plaza, investment opportunities are rife.

Step 2

What residential investment opportunities are available to me?

Property developers will often sell all or part of their development before the building work is complete in order to generate sales and finance more developments. The practice is known as selling 'off-plan', and there are lots of bargains to be had when purchasing this way. Developers have been known to offer as much as a 20% discount on the true value of the property. Additionally, some developers will guarantee a rental income at a specific value for a set period of time, or guarantee the value of the property against a drop in property prices.

Investors occasionally prefer to buy in bulk, with the idea of saving money. Some will buy a selection of properties in the same, whereas others prefer to diversify the type of property they purchase.

Investors who fancy taking on a project rub their hands with joy when a property requiring extensive refurbishment work comes on the market. This may include internal restructuring, renovation or extending the property – all with the end goal of adding value to the purchase. Some properties come with pre-existing planning permission, which will affect the sale price.

These projects require more work and, typically, experience of developing other properties. They can vary from a plot of land for new-build apartments and houses, to conversions from commercial to residential. Some developments have planning permission already granted, while other developments may be speculative.

Step 3

Which lettings market(s) will my investment sit within?

Before committing to purchasing a property, it’s extremely important to know that the tenant demand for it will be strong. After all, an empty property bringing in zero rent is of no use to anyone. As such, it’s vital that you know and understand the market is sits within, and the type of tenant it will attract. Read more on selecting your Cardiff investment.

Step 4

Should I rely on capital growth or rental yield to make a profit?

Some investors look for capital growth rather than rental yield, so will invest in properties with seemingly little or no return. If value can be added – or the property 'flipped' – then there are excellent returns to be made. However, the recent economic downturn showed property prices can fall just as quickly as they rise, which has proved to be the downfall of many inexperienced investors relying solely on capital growth in the past.

Others prefer to look at rental yield, which is the return on the capital they’ve invested – shown as a percentage. A good return in Cardiff is around 6% - though this will differ in other cities – and is largely dependent on a good, steady rental income. Given the strength of the lettings market ni Cardiff, investors can expect to see their rental income increase over time, which will mean their rental yield does too.

Read more on calculating your return.

Step 5

When can I expect to see a return on my investment?

Each developer will have a strategy and a timescale in which they expect to make a return in. Most developers work on a Return on Cost (ROC) or Return on Investment (ROI) to see if a project is viable. For a short-term, high-risk project, the developer will expect a higher return than a longer, steady project.

Step 6

Is a commercial investment, as opposed to a residential one, a viable option?

Any type of investment is a viable one if the figures stack up. When buying an existing commercial unit, it’s even more important to know the type of tenant you’re going to attract. Some units attract interest from big, national companies, which provides a great deal of security of tenure, whereas others may only receive interest from small, local companies who are liable to run into financial issues if business doesn’t go as well as expected.

Many investors purchase land and apply for planning permission to build on it, then sell it with the approved planning permission in place, which can be appealing to prospective purchasers.

Commercial opportunities include;

These spaces offer a range of opportunities, through rental agreements or subject to normal consents re-development into an array of uses, such as residential or commercial units which can then either be rented or sold.

Whether they be off-plan, new builds or units that have been used as commercial for some time – are regularly leased, acquired and sold in the Cardiff area. They provide both start-up and established companies with an ideal space from which to do business.

Depending on the size of the business and their requirements, there is a plethora of office space available in and around Cardiff city centre.

Leisure facilities cover a wide range of property types, from free-houses and pubs to disused leisure facilities. With potential for redevelopment or redevelopments, they can be a useful acquisition for investors.

Step 7

What about ground rents and service charges?

Ground rents and service charges are often overlooked in their value, but they can be a good money-maker for investors. By owning the land and freehold of a building, you have the right to collect service charges and ground rent from the people who own houses or flats built on your land, i.e. leaseholders. It’s up to you how much you charge, but it’s important to set the levels in line with the current market, so as not to put off any potential interested parties.

Step 8

Why should I choose CPS Homes to help with my investment search?

Our wealth of experience means we can offer in-depth advice on all aspects of your investment. We can be involved as you want us to be – from helping you find an investment property to assisting with planning, or even advising on the construction and interior design side of things.

To find out how we can help you, give us a call on 02920 668585 or e-mail us via enquiries@cpshomes.co.uk. Alternatively, if you fancy calling in for a face-to-face chat, we’d love to see you.