Blink Property
There’s been a lot of talk about property values going up, down and sideways lately, as different forces influence real estate markets.
But when it comes to investing, a savvy purchase can make you hundreds of thousands of dollars more and save years of your life in repayments than a poor property pick.
So how do you cut through the noise and identify value in an opportunity?
B.Invested buyer’s agent founder Nathan Birch has made a career out of identifying value.
Between starting out a couple of decades ago and today, where he has more than 220 properties, Nathan honed his strategy so that all his investment choices met certain criteria for creating value.
First, his purchase price had to be below market value. That meant he could create equity quickly, simply by getting his property up to market standard. It also meant he was unlikely to suffer immediate value losses that could jeopardise his investment in a falling market.
Second, there had to be strong cash flow. By investing in markets where he could achieve positive gearing, ie his rental income paid for all the costs of owning the property and some leftover, he was able to direct more cash into his next investments and remain relatively unencumbered by the debts on his assets. He didn’t have to tip extra money of his own to meet his repayments on a property, which would have affected his borrowing power when he was looking to expand his wealth.
Finally, there needed to be upside for growth. Say the property was located on a city fringe, or in a regional centre that was starting to emerge economically, it meant he could create more equity through capital growth which would again allow him to expand further.
These three pillars were essential to Nathan’s strategy, but there are general factors that all property investors can benefit from too.
Proximity to amenities like good schools, universities, transport hubs, infrastructure projects, major employers, recreational areas and beach or lifestyle amenities are ideal for building and maintaining value.
A close eye on upcoming developments and demographic shifts into an area can predict future value too.
Established homes with modern amenities tend to attract a broader range of tenants, but it’s not just tenants you need to satisfy.
There needs to be some resale appeal in case you need to offload the property later or need growth in order to access more equity. So, properties with low maintenance requirements or with potential to renovate and add value are other types that will appeal to fellow investors, plus owner-occupiers competing in the same price bracket.
And you should look to meet the market. If you invest in the one property without a swimming pool in a suburb where it’s an expected standard, you can’t expect it to achieve the same value as the rest of the market. The same goes if you buy a one-bedroom studio in a neighbourhood full of three-bedroom brick houses. It may seem cheap, but that’s because it’s out of place in its location and fewer people are going to want to buy or rent it.
A location might be great, but if it’s at the top of a price growth cycle, or it’s a seller’s market at the time, you’re unlikely to be able to negotiate a favourable deal.
Ideally you want to be targeting buyer’s markets. Investing is all about where the numbers stack up, rather than being attached to a perfect location. Remember, you don’t have to live there, but your money does.
Staying abreast of how different markets react to factors like interest rates, supply and demand and broader economic trends like urban regeneration projects or the development of new industries, can prove lucrative in the short and long term.
Once you’ve bought an investment property, you need to think about how you will use the asset to get to where you want to be.
Think about your strategy for what you are going to do with it. Buying and holding is a strategy that can allow your property to pay itself off over time and then be yours to earn an income off for your retirement while having the option to sell if you want to or pass down to your kids. Reno and flip strategies can enable you to make money in the short term, which can be good if you use that money to leverage into another wealth creating opportunity. But beware, turning assets into cash is turning something that will keep appreciating in value into something that begins depreciating immediately due to inflation. The day you sell an investment property will be the last day it earns you any money. Putting it up for short term rental can also mean a big cash injection in the short term, but you need to make sure there is enough demand so that its annual income outweighs what it would earn as a regular rental.
