WHERE BEFORE WHAT WHEN BUYING INVESTMENT PROPERTY
Published on September 25, 2015
What you buy when investing in property is very important and needs to be considered but not before you know where. Following are three critical questions you must answer before you buy..
After assessing the many investment options available, you’ve decided residential property is the investment vehicle you can depend on for the long term. It’s safe, secure and solid. Everyone needs a home, it’s the only asset class not dominated by investors - owner occupiers makeup 67% of the property market, so if there is a scare in the market the majority of people will hold onto their home, stabilising the property market and reducing volatility.
This is where our common knowledge of property stops and the science of property investing kicks in. Australians are often very comfortable with property, as owning a home is still possible for the average person unlike some European countries where renting is normal and only the rich own property. Only 44% of people own homes in Switzerland and 53% in Germany. Property is a part of our psyche. However, this is where the emotional attachment needs to end and as an investor, we need to take on a logical and business mindset when approaching this asset class .
What is the first step when looking to invest in property?
First of all you must know how much you can invest. It is pointless considering anything until you know what you have to play with and what you can leverage. (See Leverage The First Driver of Wealth) This will define the boundaries for you and enable you to focus on the opportunities within your scope. This step will go a long way to determining the answer to the next question. If you haven’t done that yet go to “My Starting Point” to find out what you can do.
Next step is to establish what the key ingredient for growth in your investment will be?
Just as baking soda and yeast are the raising ingredients for cakes and bread without which your baked treat will have no growth and come out of the oven flat, location is the prime catalyst for capital growth. Most people think in terms of how they live, what their personal preferences are and what they like. This in itself is not wrong, but is it broad enough? We want to capture the majority of the market. Where do most people want to live? Do most people want to live in a regional mining town? Or do they want to live in a McMansion on the outskirts of a city? Understanding the drivers to people’s choices for living in a location is key to choosing the location for your investment. Some of those drivers maybe jobs, lifestyle & amenities. In our opinion location, like baking soda is the catalyst and is affected by many influences from a macro perspective, (economic, policy and planning) as well as from micro influences such as infrastructure, development, supply and property markets within property markets.
You know where to buy but do you know WHAT to buy?
Once you’ve pinpointed the location, WHAT do you buy? Of course baking soda doesn’t work on its own, it needs other ingredients that are activated by the catalyst. Not only do we want to capture the majority of the market but we want to capture the majority of the market for that area. House with three, four or five bedrooms? Townhouse, duplex, apartment, high rise, low rise, one bedroom, two or three? Research is as important here as it is in determining the location. Demographics are the key to this decision, and not just the current demographic profile but also the future demographic profile. What are we going to look like as a society in 20 years? Things change very quickly, the internet only took hold in the mid ‘90s and Facebook began in 2004. How old are we going to be? How many of us will be in the average household? What are our expectations for lifestyle going to be? The answer to these questions will determine the type of property that will be of highest demand in the future. The future being when you want to cash in on your investment!
These are big questions and critical to sourcing the very best property investment. And this is what we do best at MRD. Our days are spent searching out this information. Being property investors ourselves, we’ve seen the good, the bad and the ugly when it comes to property investing and we've learned from our own mistakes. Partnering with MRD exposes you to our research and scientific approach to property investing; which ensures you have the best opportunity available to you.
If you need help with any of these three (or any other) questions contact us here, using the hashtag#investmentsupport.
Partnering with you for your investment success,