How many is too many in a development?
Hey guys,
I received this question from a client of ours and I think it's important that you understand some of the criteria we use to choose a development.
Stephen asks,
"If you guys negotiate for several properties in one development, and they're all sold to your clients, I guess that means they all come up for rent at the same time. Does that upset the market at all? Are your clients all competing with each other for the available tenants?"
The short answer is 'maybe'. You see, if the market is used to having 10 x 2 beds on the market at any one time then that will be fine. If the market is used to have 1 x 2 bed and you complete 10 then this could have an effect on the market.
Interestingly, it won't affect the value of the property -- only the rent you are likely to receive. It's all comes down to supply and demand.
The next factor you need to consider is how many apartments you put with each agent. We operate with a strict 4 apartments per agent rule. So if we do 20 plots we need to find 5 different agents in the area. Spreading like this means that we get maximum exposure to the local market. Naturally, if one agent performs well and successfully lets all four we give them, then we give them more, taken from an agent that's not performing. And you guessed it -- in the end we usually wind up having a couple of agents that let most of them.
This is important also -- don't think that just because you have instructed an agent to act that you have to stay with them. If they are incompetent you need to terminate them. This is why it is so important that you use our expertise here. We deal with incompetent agents all the time. In fact I have sacked more agents than I've had hot dinners. It's almost a favourite pastime in our office and you'd better believe that Chloe and Karen are quite the Dobermans in getting your properties let out. They know their job and do not take any rubbish from incompetent agents.
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Are all clients competing against each other? I do not believe so. On the surface they may appear to be, but here's the thing -- I don't believe in competition as a business concept. Your property is not normally exactly the same as the others in the plot. Square footage may be the same but the aspect, the floor, the price you paid, your emotional state, your relationship with the agent, and the needs and wants of the potential tenants all play a part.
It's like anything. On the surface you can say they're pretty much the same (and therefore competing), but as you dig deeper you begin to see the many hundreds of reasons why they aren't.
Using a company like YourPropertyClub means that we are small enough that we don't need to take hundreds of apartments in each development. Additionally, we strive for a 60/40 split between owner-occupiers and investors in developments we go into. If it's too high, you may well be waiting for your place to let. If it's too low there may not be a buy to let market in the area.
Finally, developers often phase their completions which mitigates the risk of affecting the market too much. We always check this before we proceed. It's an important part of our 89 point due diligence checklist.
So realistically there are so many factors to consider and it's a good conversation to have with a local agent or two. Adequate due diligence will give you a good head start and should allow you to anticipate what the market opportunities will be for a property.
Live with passion,
Brett :-)