What is it that makes a property worth investing in?
For the most part, if you can answer that question and then execute it effectively, you are well on your way to success in property.
When looking at purchasing a property there are three key elements that make it a property that is worth investing in. There are many other factors to consider, but these three are the main ones that you can use to help identify the best opportunities.
We all know that buying a property in the right location is important, but what does that actually mean?
The first part of a good location is to identify the type of amenity in that area. A property that has good amenity, which is normally found close to the CBD, is an area that multitudes of people are drawn to because it is surrounding by things others value.
Commonly this is access to jobs, close to beaches and rivers or near shopping and cafe and other lifestyle factors. Other important things include access to high-quality schools and universities which is particularly important for families which make up a large portion of the market.
A great location, backed by excellent amenity, always generates significant demand pressure.
Simply put, people always want to live in these areas, because they are great areas to be in.
If that strong ongoing demand is coupled with a lack of supply, then that can only have one impact on prices – they rise over time.
Owner Occupier Appeal
The second element is ensuring the property healthy owner-occupier appeal which links closely to the first element of location.
We’ve already seen that having great amenity in a great location, leads to long term demand. The key point to note here is that much of that demand comes from owner-occupiers who want to live in that area to make the most of that amenity.
Owner-occupiers buy based on emotion and they will do (and pay) whatever it takes if it means buying the home they want.
On the flip side, an investor buys based on the numbers. They are not going to pay any amount of money for a property if the numbers don’t add up.
If an owner-occupier wants to buy a home because it’s in a great school zone, they are going to be highly motivated to pay whatever they need to pay to make the sale happen.
Often times, investors will be tempted to buy a property because it offers a great rental yield, but that can be a mistake. It’s always more important to think about who will be the person buying this property off you down the track.
You’re far better off having a line of owner-occupiers, desperate to buy your property because of the great location and amenity, rather than simply appealing to a few investors based on the yield alone.
By putting supply and demand in your favour you’re able to generate strong capital growth over a long period of time.
The final factor you want to consider is scarcity.
If you’re going to sell a property and there are 10 others down the road that are all exactly the same, then what’s going to make someone choose yours over the others?
The only thing you can differentiate on is price and that’s the worst possible outcome because it means your property is worth a lot less than you might have hoped.
The best example of this is buying a house and land package in a new housing estate. There is nothing different between any of the properties and therefore you’re unlikely to see significant growth over time and when the time comes you’ll struggle to sell.
When looking for a property, ensure you have a product that is unique, yet still in high demand. That puts you on the right side of supply and demand.
If you can check these three boxes you will have a great investment on your hands that you can be confident will see significant capital growth over time.