At present we have two pages on Locations, one in respect of London and one covering Out of London.

We appreciate that this results in a very general look at both areas, but over the forthcoming months we will be increasing the amount of information that we publish on specific locations, including those mentioned, plus others that we are currently researching.

Hot Spots

A great deal is made of Hot Spots, in fact it is probably the most asked question that is raised, "where is the next hotspot"?

We have looked at the dynamics of investing in hot spots and you may be surprised to learn that they are unlikely to out-perform non-hot-spot investments over the life of a buy-to-let investment, say 10 years.

In reaching this conclusion we make the assumption that you are unable to achieve a Loan to Value of 85%, due to the current low gross yields in the potential hot spot, and therefore your initial capital base is lower.

If you take as your starting point an average annual capital growth rate of 6%, if you reduce the maximum possible LTV to 80% the average annual growth rate has to increase to 9+% and, in the case of 75% LTV, increase to 11+% to achieve the same level of capital gain at the end of 10 years.

If you were to start at 6% in the hot spot location and enjoyed two years of high growth before falling back to the 6% average, the growth rates in those two years has to be greater than 35%.

The result of this analysis is that we do not invest in potential hot spots unless the numbers stack today, then, if the potential hot spot becomes a hot spot, it is a bonus. Having said that we think that all the areas that we invest in are potential hot spots for one or more reasons but, in each case, the numbers work now.

This analysis and other number-crunching aspects of buy-to-let are covered in our Master Class in Buy-To-Let Workshop.

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