In good times, it's an easy task to become complacent whenever choosing an investment property. The media's high in hype, costs are skyrocketing, and people are in a scramble to buy. It's not unusual in times such as these to genuinely believe that anything you touch will turn to gold CBD dispensary. But it's not until things get a little rocky that the market really starts to sort out the wheat from the chaff. Properties that never had the right fundamentals get hit hard, while the remainder calmly weather the storm.
With the market turning upwards once again, I'm sure a lot of you're contemplating acquiring an investment property. If you are, learn from the mistakes many more made within the last boom and purchase wisely. You must always remember that don't assume all property is the same. In fact, the potential for growth in each property can differ quite dramatically.
Let me explain. What would you say if I offered to create you a cheque in 10 years' time for $75,000, no strings attached? I'm sure you'd jump at it. Well, buying a $500,000 property that experiences a 7% average annual growth compared to 1 with a 6% average annual growth will result in around $75,000 of extra equity. Even with only 5 years, the 1% difference will put about $25,000 extra into your pocket. It's a straightforward example but just goes to show property selection is critical to maximising your wealth.
Selecting the perfect property often comes down seriously to several factors. In this article, I'm going to target on just one single - supply.
Supply is just one half of the equation, demand being the other. If demand for houses increases faster than supply, then prices should go up. If demand decreases and plenty of supply still remains, prices go down. And naturally, if they are about equal together then prices will remain relatively stable. Not a bad thing, however, not a good thing either if you're looking to construct your wealth as fast as possible. So if you're looking to buy a well-performing investment, it makes sense to consider something in a place with relatively limited supply.
Areas with limited supply are generally the ones that are well-established. If you get a 3x1 in a place that is 30-40 years old not too much from the CBD, you understand that supply of that form of property is unlikely to boost substantially as there is no further land available to construct on. Assuming people hold a desire to live in that area and, better yet, you predict that desire to boost over a long time, then you can be reasonably confident your property's value will continue steadily to rise. But just buying in established areas near the CBD is certainly not secure for every single form of property. Look at a 2x1 apartment merely a short stroll from the CBD. If there is surrounding land ripe for development, or plenty of old buildings ready to be demolished for brand new apartment complexes, supply of apartments in that area could possibly be plentiful. When researching a place, I believe it is valuable to contact the council to find out what plans there are for the area. Potential changes to zoning to allow more subdivision or demolishing of large schools or hospitals to support new estates in the region, may all effect on your final decision to purchase whether for worse and for better.
Venturing out further from the CBD often contributes to areas that are relatively new and perhaps starting or in the midst of development. Many are generally abundant in available land, both in their particular suburb and in future areas surrounding it. Whilst I certainly believe there are a few good buys such areas (due in their mind possessing other key fundamentals), they can be risky because of excess supply issues.
Often supply must be looked at in light of time. There could be enough land in the region to produce for another 10 as well as 15 years, and if there's an actual chance you may sell in that timeframe, you may well be caught fighting against a hundred other similar homes available on the market at the same time. With plenty of competition, it's unlikely houses in the region is likely to be achieving significant price growth. In this scenario, you may find your hard earned money may have been better invested in another area.
But sometimes supply is not at all times about what land or opportunities are about ready for development. A personality home from the first 1900's in a place with lots of redevelopment going on, will still fare well. That is because character homes themselves are always in limited supply - what stands today is all that may ever be. Regardless of just how much land is established in that area, you simply cannot duplicate age and real features of an identity home that are much desired.
The thought of supply and its effect on price growth is in fact quite logical but it's something that many investors somehow appear to forget. Perhaps they get overly enthusiastic with the excitement of buying, are won over by the beautiful décor of a spot, or can't resist a so-called "bargain" ;.For this reason it's so important when buying an investment property, to consider with your mind and not together with your heart.
Remember, if you intend to build real wealth it is absolutely crucial to purchase property that outperforms the market.And besides supply, there are numerous other factors that should be thought about when selecting a property.
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