Seeking out capital growth potential in an investment property

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A well-known belief in real estate is that you will always make money, or the price of a property always goes up, as long as you hold onto property long enough.

 

In the most recent Pain & Gain report, delivered quarterly by CoreLogic, houses which resold at a loss had typically been owned for 6.5years whilst those resold at a profit had been owned for 9.4years. Units selling at a loss had typically been owned for 7 years, whilst those resold for a profit had been owned for 8.2years.

 

In the 3rd quarter of 2018, 10.1% of owner-occupied properties sold at a loss compared to the 13.8% of investor-owned properties.

 

These figures above show that whilst the length of time is important in holding a property, obviously the quality of a property is a major driver of determining whether your property will sell at a profit down the track. It seems looking at these numbers, that owner-occupiers have a slightly better gauge as to what makes a better property.

 

As a buyers agent with over twenty years of experience of analysing and buying properties, I want to clarify how you can buy the kind of profit making property so that you will not only NOT sell at a loss, but make more money than anyone else.

 

When it comes to buying property I have found that most home buyers could use with a bit of investor analysis critical thinking and investors really need to think more like owner-occupiers.This way both will be guaranteed with the biggest buyer pool when it comes to selling in the future.

 

It is a truism that when it comes to buyers, owner-occupiers will pay more than investors whose budget is mostly determined by nett yields, so it makes sense to have a property that is appealing to both segments of the buyer pool.

 

Having the most number of people attracted to your property, whether it is your investment or home, in any kind of market,  is ultimately how you determine capital growth potential for the future.

 

Likewise, with so many new properties coming on the market for rent, tenants will and can be, picky when it comes to choosing a place to live, so it has to be appealing to them. After all, what you are looking for is a tenant who stays for many years, looks after your place whilst you keep your costs down and reap the capital growth rewards in the long run.

 

So how do you know what most people like and what they will pay the most for?

 

By looking at the Macro ( Location) and looking at the Micro ( Property) one can accurately determine whether a particular property will likely be an under or over performer when it comes to capital growth potential for the future.

 

In this article, I will get you started with a number of these. 

 

Let’s start with Macro and Location…. As people always like to talk about it being the most important element of the property, I want to break it down further 

 

Location –

A few words of wisdom I would like to start with… Coming from the Northern hemisphere, I had always been told…Don’t eat yellow snow,( and likewise, for buying property… )don’t buy on yellow roads! Hopefully, this little saying will remind you the one thing, in my experience, you should NEVER compromise on. Yellow roads signify those roads on maps with an increased level of traffic, usually bus routes too. They are the main roads and also the first roads to become undesirable in a down market. If you have a look at all those properties that have now been on the market for a long time, passed in at auction/withdrawn or those who’s asking price keeps getting lower – I bet you a large proportion of those are located on main roads.

 

Location –

Buy in a street which has good walkability – to a bus or train, to shops and schools. There is a careful balance there – too close and those amenities become a nuisance, like people using your street to park in to use those amenities all day and every day…too far and people won’t see them as a benefit and will drive there instead.

 

Location –

Look at your neighbours: a house next to a block of flats is not a good choice, as it impedes privacy, real or perceived.

 

Location –

Another place to avoid is a street with a house you like, but with lots of apartment blocks in the street. It is likely street parking becomes a problem with apartment block owners and tenants needing to park in the street. Parking will be at a premium.

Lots of units will also mean that the streetscape will not be as looked after as a street with only houses, as a proportion of those apartment blocks will be owned by investors, who are less likely to be concerned about the upkeep of the buildings.

 

Location –

Another red flag is a unit above commercial premises – there may be higher noise levels, the potential for burglaries may be higher and if the tenant moves out and gets replaced by an inferior tenant ( think kebab shop) it will affect the value of your property, not to mention the unpleasant smells wafting into the unit at all times. This might not be an issue for you, but the tenant/ potential buyer will sure notice and vote with their feet when it comes to the time to renew your lease or purchase the property.

 

Location –

To know the owner-occupier versus investor hold on an area is vital. Areas with higher numbers of tenants, tend to be not as well looked after as investors don’t invest as much on the upkeep of properties as an owner-occupier would, and tenants are invariably limited on what they can do on a property to improve it.

Now let’s look at the property itself or the Micro side of the analysis:

Again we need to look at what the largest proportion of the local buyers are looking for –

  • This relates to – the type of property – If the overwhelming majority of properties is a weatherboard – than don’t buy a ‘70’s red bricker! People are attracted to character homes and certain suburbs for this for a reason, and if you buy a different era home you may have trouble selling.
  • This relates to the size of the property also – if your home or the land size is smaller than most or larger than most you only capture a small segment of the market when it comes to selling.
  • Price point – buy within the most popular price segment in that market. If you buy the most expensive house in a cheap suburb you will have cut out 99% of potential buyers for the future and so it will be harder to sell.

 

Finally what features does a property need to have to be attractive?

 

  • Internal light is paramount. A unit with a lack of internal light is a big no-no. I mean who wants to live in a cave? There is also nothing you can do to improve internal light in a unit. Perhaps you have more luck in a house, but not without investing a bit of money, so be careful there.
  • Flow – A good flow from the front of the property to the rear is essential. Rooms which allow for practical furniture placement ( and don’t have a door opening in every wall) comes under this banner, and having a dining area next to the kitchen, but also the indoor/outdoor flow, for example with a view from the kitchen to the garden, especially important to those buyers who have small children. It also allows for cross ventilation in those hot summer months…
  • Floor plan – A good floor plan makes for a home that is easier to live in. An example of this is bedrooms being grouped together along with a bathroom for example. No one wants to have to take a small child to the bathroom if that bathroom is located down the stairs and past the kitchen in the middle of the night… or worse you need to go to the bathroom after a night on the tiles… and potentially cause injury falling down those stairs…Having a bathroom in proximity to the bedrooms seems like a no brainer but often gets overlooked. If you buy a home without this plan, it can often be prohibitively expensive to change the floor plan to accommodate this.

 

So to go back to what we talked about:

Location – Don’t eat yellow snow

Location – Walkability

Location – Neighbours

Property – Type

Property – Size

Property – Price

Home – Internal light

Home – Flow

Home – Floor Plan

Now, these are just a few hints to get you started, but with these nine points, the property you pick will have a much great chance of outperforming the property market than before. With all the hard work done upfront, wouldn’t it be great to see your investment work harder for you?

 

 By Michelle May 

 

About the author

Buying her first home when she was just 22, Michelle May has gone on to become one of Australia’s most trusted and experienced property experts. As well as being the co-host of the popular weekly Podcast Sydney Property Insider, she is often invited to speak about buying and selling property in the national media, where her expertise is in demand.

 

Michelle knows that buying a property is an incredibly stressful time, especially as the entire real estate industry is set up to service the needs of vendors only.

 

As a buyer’s agent, Michelle’s job is to redress the imbalance, by working solely for the buyer and securing the right home at the lowest possible price. Through her years of studying the market, and by taking a non-emotional approach, Michelle is able to cut through the real estate agent bluster, to capture the very best deal for her client. Most importantly, if she feels a property is overpriced, she is prepared to walk away.

 

In this softening market, the need for Michelle’s services are greater than ever, as vendors attempt to unload inferior properties to unsuspecting investors.

 

Over the years, Michelle has quite literally saved her clients hundreds of thousands of dollars.

 

Michelle May takes the pain out of buying your next home.

www.michellemay.com.au  

 

 

 

 

 

 

 

 

 

 

 

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About Author

Kizzi Nkwocha is the editor of The Property Investor and publisher of The Sussex Newspaper, My Well-Being Magazine, My Making Money Magazine and My Entrepreneur Magazine. Kizzi Nkwocha made his mark in the UK as a publicist, journalist and social media pioneer. As a widely respected and successful media consultant he has represented a diverse range of clients including the King of Uganda, and Amnesty International. Nkwocha has also become a well-known personality on both radio and television. He has been the focus of a Channel 4 documentary on publicity and has hosted his own talk show, London Line, on Sky TV. He has also produced and presented both radio and TV shows in Cyprus and Spain. Nkwocha has published a number of books on running your own business and in 2011 his team won the Specialized Information Publishing Association (SIPA) award for best use of social media. In the UK he runs a successful media consultancy called PRHQ which manages PR for businesses and individuals.

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