It’s probably the question I get asked most at the moment: with everything that’s going on right now, what would you actually be buying if you were buying? What would you be looking for if you were adding to your portfolio today?
I want to give it a proper answer — and before I do, I want to name one mistake I see investors make repeatedly in this market, because it tends to undermine the whole decision before they’ve even started.
The current market is genuinely harder than it was three or four years ago, and I think it’s worth being clear about that rather than papering over it. Mortgage rates are substantially higher than they were in 2020 or 2021, and that has a very direct effect on cashflow. Properties that were producing a comfortable surplus at two or three percent finance look completely different at five or six, and in some cases produce very little surplus at all. The regulatory environment has become considerably more complex too — more compliance, more to think about, more to get right. And it comes with more costs.
But there are things about this market that genuinely haven’t changed, and that are quite encouraging if you’re approaching this properly. Rental demand across most of the country is strong — consistently, persistently strong, driven by a housing shortage that governments have been talking about fixing for decades and have comprehensively failed to address, and allegedly a large number of landlords having enough of the politics and leaving the market. In most of the areas I’d be looking at seriously, voids are short and rents have risen noticeably over the past few years, in a way that has in many cases improved yields even though finance costs have gone up. The income side of the picture has held up considerably better than a lot of the commentary would suggest.
Prices in quite a few areas have adjusted from their 2022 peak — not dramatically, but enough that deals that genuinely didn’t work two or three years ago are starting to make sense again, particularly at the lower end of the market, which is broadly where I tend to focus.
The One Mistake
The mistake I so often see investors make is trying to buy for both cashflow and capital growth at the same time, in the same property. I understand why — both feel like legitimate objectives, and in a rising market with cheap finance you could almost get away with it, because the numbers were generous enough that the decision didn’t feel especially important. But in this market, with rates where they are and uncertainty around growth, you have to choose. You can’t optimise for both simultaneously, and if you try, you tend to end up with a property that doesn’t quite deliver on either.
Capital growth in the short to medium term is genuinely uncertain. Building an investment case that depends on values rising over the next few years is not really an investment case — it’s a bet, and most people taking it don’t fully realise that until the market stops moving in their direction. Property does go up in value over the long term in this country, but short to medium term, prices can and do pull back. If your numbers only work on the assumption they won’t, you’re in a weaker position than you might realise.
My position in this market is cashflow first, capital growth later. Make sure the property covers its costs properly and generates a real surplus, and let capital growth take care of itself. If cashflow is strong enough to pay down the mortgage over time, that’s a different form of capital growth and wealth building that doesn’t depend on the market doing anything in particular.
Three Filters
With that as the starting point, here’s how I’d go about finding something to buy.
The first filter is cashflow — cashflow that works at current mortgage rates, not rates from three years ago or rates you’re hoping will come. I want a property that covers everything: finance, maintenance, insurance, letting agent fees, a sensible provision for voids — and still produces a surplus after all of that. If the numbers only work on the assumption that something improves, I’d leave it.
The second filter is the ability to add value — a refurbishment, a change of use, a reconfiguration. Something where the work costs less than the value it creates, and where I come out with a property worth more than I’ve put in. The reason this is important is that it creates a buffer I’ve built myself, rather than depending on the market to provide one. If you buy at market value in its current condition and the market dips, you’re immediately in a difficult position on equity. If you buy something that needs work at a price that reflects that, do the work well, and end up with a property worth more than you’ve invested, you’ve got some protection if prices pull back. It also tends to improve the cashflow — a well-refurbished property commands better rents, attracts better tenants, and costs less to maintain.
The third filter is area. I’m looking for solid, unremarkable places — areas that don’t make the property press, that nobody’s calling an investment hotspot, but that have reliable tenants, reasonable prices, and rents that actually stack up against current purchase prices and finance costs. The key point is that the numbers have to drive the location choice, not the other way round. If you’ve decided on an area because you like it or you’ve heard it’s good for investment, and you’re trying to make the numbers work around that, you’ve reversed the process. And be careful about being tempted by higher-end areas where yields are low but capital growth looks attractive — if you’re choosing location on the basis of what you hope values will do, you’ve slipped back into exactly the trap I described above, and the lower yield will work against the cashflow.
Every Cycle Has Its Version of This
Having been a professional in the property market since the 1980s and an investor since the mid 1990s, I can tell you that every single cycle has had its version of ‘this is too difficult right now, I’ll wait until things settle down before I buy.’ The early nineties had crashing values and fifteen percent interest rates. 2008 had frozen credit markets and prices falling sharply. 2016 had the Section 24 shock and the stamp duty surcharge landing at almost exactly the same time. In every one of those periods, investors who understood the fundamentals, adjusted their approach to the conditions they were actually in, and kept making careful, disciplined decisions did well over the medium term. The investors who waited for conditions to return to normal waited a very long time — because conditions never return to what they were before, they just change into a different type of normal and the waiting investors get side-lined.
So: choose cashflow, and let capital growth look after itself when it comes. Unless, of course, you really do want capital growth — but be aware it’s very unpredictable and you’ll probably struggle with cashflow and covering your costs. Ideally, try and look for something where you can add value and create your own buffer, rather than depending on the market to provide one. And let the numbers choose your area, not the other way round — solid, unremarkable places where the rents genuinely stack up at today’s rates and the tenants are reliable.
If you apply those filters, and you’re patient enough to wait for deals that genuinely meet them rather than stretching to make borderline ones work, there are still good deals to be found. The market right now rewards careful thinking and disciplined buying — and honestly, that’s not so different from every other market I’ve operated in.
Here’s to successful property investing.
Peter Jones
Author, property investor and ex-Chartered Surveyor
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