Investment Property or Home Selection and Purchase Evaluation - What should you look for and consider to profit?
Investment property selection for the uninitiated can be all too personal and time consuming. Certainly buying a home to live is far different to buying an investment property.
Our home should be bought with an element of our heart, (after all we have to live there), but when it comes to making money in real estate we have to let the numbers do the talking.
Yes you want your tennant to have a WoW response when viewing your property, but you also want your retirment fund to grow at the best return you can get.
'So for as long as I can remember home or more specifically investment property selection has caused great debate amongst us all because we all think we are our own expert in our own way. Alas, we often find that our own opinion costs us money that we then have to try and justify.
And yes, I put my hand up to making too many self opinionated decisions early in my investment property 'life' that cost me more than I am happy to admit!
However, the simple solution to that in the end was to gain some knowledge as to what affects the market and therefore what will make a good investment.'
So in recognising that there is no accurate and infallible formula that will predict how the changing trends of society will affect the perfect position or the demand for any particular property, lets take a logical, unemotive look at the market.
With a little bit of insight into the past, present and future supply and demand of a position, we can be more informed to be able make a good home or property investment decision.
I discuss this at length in the Position - Position - Position chapter of my book but here's an excert for you.
The changing trends affecting property investment in Australia are:
· Personal debt levels
· Higher Density Living
· Café Latte Lifestyle
· The advancement of communication and transport technology
· Prolonged stability of the economy
The “Baby Boomers” (born 1946-1964) are becoming a more important segment of the population due their increasing numbers approaching retirement. They are more active, wealthier and healthier than past generations. They also want to pursue their leisure time and are happier to spend and holiday more than their parents did.
Generation X (born 1965 - late 1970’s) have a far different view to the ideal home than their parents did. They are technologically hungry, more “casual” in their living, environmentally aware and are keen to be energy efficient.
Australia’s population is getting proportionally older as the rapid 1946-1964-population surge grows old.
There are an increasing number of single households through divorce, or permanent single families.
There are increasing numbers of singles wanting quality, affordable, single or platonic share accommodation.
WINKs (Wealth Inherited No Kids). The birth rate has been below population replacement level since 1976 hence, WINKS are increasing in numbers and their preferred living is solely focused around their own lifestyles.
DINKs (Double Income No Kids) are also increasing in numbers. Their own life-style is understandably their prime concern and it includes holidays, home entertainment, labour saving and time saving anything. By 2016 DINKs will outnumber couple families with children.
The government uses adult migration to maintain population levels.
On 22 July 2003 at 21:49:56 (Canberra time), the resident population of Australia is projected to be: 19,899,544. This projection is based on the estimated resident population at 31 December 2002 and assumes growth since then of:
One birth every 2 minutes and 5 seconds
One death every 3 minutes and 46 seconds
A net gain of one international migrant every 5 minutes and 50 seconds leading to an overall total population increase of one person every 2 minutes and 35 seconds.
These assumptions are consistent with those used for series II in Population Projections, Australia 1999 to 2101 (ABS Catalogue No. 3222.0).
Australia’s increasing personal debt levels
The Higher Education Contributions Scheme (HECS) leaves a personal debt level at graduation.
This influences decisions to buy a home and marry. (And yes any investment property also!)
Household debt -
Up across the board
Credit card use -
More people are using credit cards more often and owe more on them.
Higher density living -
More apartment and town house living. Every one percent drop from separate dwellings to apartment living represents 14,000 new apartments annually.
Café Latte Lifestyle -
Coffee shops, galleries, boutique shopping and dining out are becoming more popular with both young and old population segments.
Communication technology -
The influence of the Internet and greater computerisation of the workplace, means more people are able to work from home, interstate, overseas or semi-country.
Lengthening and improvement of freeways and motorways, and cheaper, reliable cars have reduced apparent distances. People now tend to speak of minutes not kilometres.
Australia’s Economic Stability
Interest rates are the lowest they have been for decades and this looks likely to continue.
Inflation looks likely to remain under control.
First Home-Owners Scheme is a grant that is used from time to time to promote entry into homeownership and stimulate the economy.
We know that supply and demand drives any market and in a positive property market, capital growth is its by-product. Understanding the Changing Trends and Changing Demographics will enable you to target property positioned to meet in demand property.
A good general place to start is to buy property within:
1) A short walking distance of your daily needs. This means things like newspapers, bread and transport.
2) A short driving time of your weekly needs like shopping, movies and services.
3) A relatively short driving time to your recreational wants like sporting arenas, golf courses and beaches.
Then you can consider in more specific detail:
1) Actual distance and travel time to a Central Business District-CBD or preferred hub such as a Regional Business District-RBD or Satellite City-SC
2) Proximity to recreational water.
3) Proximity to retail and lifestyle shops.
4) Proximity to services such as banking, post offices, libraries, churches, hospitals and medical centres.
5) Distances to schools
6) Views of something nice
7) Security, which means safety for the family and consumer belongings.
8) Availability and proximity to work or work opportunities.
9) Adequate public transport.
10) A quiet location
11) Communication facilities
12) Demand for car parking space
A little bit of homework
(opens in a new window)and knowledge creates an better understanding helps to identify the real value of a position. Obviously this takes both time and work.
Your alternative is to know this knowledge but use the services of someone that does investment property selection and evaluation for a living. Just as you would or probably should use a mortgage broker to organise your loans, so should you use a specialist in investment property selection.
From personal experience it has saved and made me a lot of dollars and can only recommend that if your really serious then find experts to do this work for you.
Stated Facts resourced from 'The Australian Bureau of Statistics, Year Book Australia 2001'
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