The ultimate for any investor is to find a market which is changing, has potential for the future but has not necessarily been recognised by the masses as yet. Finding so-called property hotspots is not as easy as many would have you believe but if you do your research, monitor markets and bide your time, there is no reason why you should not at least get a head start before the sheep follow the experts.
Local economy
It goes without saying that any vibrant property market is based upon the local economy, employment market and demand for property. If we take the example of the high-speed rail link which has been in the news of late, this will be a game changer for many towns, cities and villages on the route. Whether it actually gets off the ground and is completed remains to be seen but this is a perfect example of thinking ahead although there are obvious risks.
Demographics
The demographics of an area can give indications of future prosperity and demand for property whether rental or investment. If we look at some of Scotland’s more prosperous university cities can you imagine the potential returns for those who spotted this changing trend many years ago? University cities have always done well on the rental market but changes in student accommodation have seen many of these cities prosper and become property hotspots. Even though funding for universities and education in general seems to get ever tighter there is no doubt that more and more people are now looking towards further education to enhance their chances of employment in the future.
Early investment equates to higher risk
If you have spotted a potential property hotspot of the future you will need to balance your risk profile with your financial position. The simple fact is that where a potential property hotspot is emerging, but not yet confirmed, there could be significant risks and it might all go wrong. Taking the example of the high-speed train link, as detailed above, there may be significant returns in the long term but if the plan is delayed or amended this will impact which local property markets prosper.
Perhaps if you were to spread your risk across a number of possible property hotspots the average return would at least maintain the value of your funds – assuming you got at least one market correct!
Diversify your portfolio
Some property markets go from strength to strength, some markets seem to mature fairly quickly therefore looking towards future property hotspots is the lifeblood of any active property investor. When looking at any investment market it is vital that you diversify to a level which at least gives you some form of protection in case one of your property markets was to experience a downturn. You should also take into account your own financial position, other investments and plans for the future.
The longer you wait to invest in a potential property hotspot, often waiting for greater clarification and certainty, in theory this will reduce your possible returns.