When it comes to choosing the best property-investment locations, you should do more than just count the number of skips and organic coffee shops. Vadim Toader reveals the tool that can help you find the next property hotspot
Skips outside run-down period properties, and organic coffee shops being opened in vacant units have long been regarded as signs of an up-and-coming residential area.
These are the indicators potential purchasers are supposed to look out for if they want to make sure of buying a property that will be a sound investment.
However, modern technology is now providing a more accurate way of identifying the undervalued areas that are set to become more sought after.
What is more, it can pinpoint these areas before the skips appear on the streets, and a stainless steel commercial espresso machine gets installed in a previously empty shop.
Identifying value
The value of a house has traditionally been determined by two main factors: where it is located and how it is presented. But these two factors have within them numerous nuances, and as a result it is impossible to make direct comparisons.
This means that valuing a property had always been more of an art than a science. An estate agent with years of knowledge about the market in a particular area can give an indication of property value, but this is based on prices today.
Predicting how those prices are likely to rise in the future, and whether a property represents a promising investment, is a more complex judgment involving a combination of valuation and forecasting.
Flawed system
It is a fact that some properties have the potential to rise more substantially than others. Yet this is not currently reflected in the existing flawed system by which mortgages are calculated.
As a result, the capacity for certain homes to enjoy a significant increase in equity is also overlooked. This is something that we are seeking to address with the Proportunity Home Index (PHI), which processes and analyses data on a vast scale to identify patterns and trends.
It not only uses data relating to the property and its location, such as floor space and proximity to green areas, but it also examines wider economic, environmental, and social data such as unemployment levels and school ratings to identify patterns and trends.
Growth potential
We started building the PHI in 2016, and now have years of data which is continuously being updated and helps create an accurate picture of the value growth potential of any property.
One of the factors that the PHI considers when assessing the future value of a property is developing infrastructure, which can have a significant impact on the desirability of a property and its value.
For example, Edgbaston in Birmingham has been identified by the PHI as a location that will see a significant increase in property prices because of enhanced transport connections provided by the HS2 (High Speed Two) rail network, and also improvement schemes at Edgbaston Reservoir and Summerfield Park.
Shared equity
At Proportunity we believe the future value of a home is something that should be reflected in how mortgages are calculated.
We practise what we preach by utilising information from the PHI when deciding whether to provide purchasers with shared equity loans so that they can boost their deposits and get better interest rates.
The PHI enables us to identify whether properties will provide good investment yields, and to assess if a valuation is fair, or if a property has been undervalued or overvalued. We only lend on properties the PHI indicates to be a fair price or undervalued.
For would-be homeowners, this information from the PHI also brings confidence, as they can see if they are making an investment in a property with good potential to increase in value, and as a result increase their amount of equity.
Vadim Toader is CEO of Proportunity, the fintech neo lender
