There are numerous considerations you may want to take into account before purchasing an investment property. So we have gathered five important considerations you may want to think about before buying a property. Each of these may impact the way you invest and what approach you take.
A short-term focus
Focusing on the short term may help the investor outperform in the long term. Knowing this gives the investor an opportunity to focus on finding markets primed for short-term growth. The term “short-term” is used because historical data suggests focusing on long-term investing doesn’t work when wanting to outperform the average. In fact, data suggests each major metro market actually deviates towards the national growth average when analysed over a long period of time. This means if you hold for the long-term you are likely to see average growth rates.
Now, let’s make a clear distinction, this is not to say long-term investing doesn’t work. Historically there is no doubt that over time property rises. However, if you want to outperform the national average you may want to take a short-term approach. That is because over the short term markets can have significant periods of growth or decline. So, if you focus on markets moving up you can maximise your return. By seeing strong short-term growth an investor could leapfrog into their next investment with equity or sell and take their returns.
As an investor, you want to adopt the approach of becoming a “borderless” investor. By understanding market cycles why would you limit yourself to one area? Taking a borderless approach means you aren’t limited to a specific state or area based upon your own predetermined agenda. This will enable you to purchase in a wide variety of markets which creates more opportunities for you as an investor. Investors who limit themselves to their hometown may be shooting themselves in the foot. For example, when you are looking for a new car you wouldn’t go to the closest dealership and assume that is all you could buy. You would take a much broader approach and try to find the best car for your needs and budget. The same can be said about investing in property, don’t limit yourself to one area. Widening your search area may require more research but it will likely provide you with greater opportunities.
Narrow it down
To identify a property you may want to take the narrow-down approach. Start at the stat level to identify areas of potential growth that align with your investing strategy. Once you have identified the state you are interested in, and this could be more than one at a time, you will need to delve deeper into understanding the regions within that state. It is important to note, even areas within cities perform differently so having a broad understanding isn’t enough. Identify pockets of suburbs within a prospective city that demonstrate high demand is the next step of timing your purchase. No one has a crystal ball to accurately predict what will happen in any given market across a specific time frame. However, understanding the historical data of an area and where that area is within its cycle can assist in making bolder and more educated investment predictions.
A common misconception across many property investors is that cheaper properties lead to “poorer performance”. While more expensive is considered “better quality”. This is far from the truth when solely looking at numerical data over the short and long term. The term cheaper generally refers to properties below the national average house price. These properties have shown to achieve the same and, in many cases, more capital growth relative to their purchase price. In addition, they generally have higher yields making them easier to hold. They also allow investors to diversify capital across numerous markets. A property’s price point does not determine its performance, the demand for a property is the driving force behind property growth. If you want to purchase a better performing asset look at the supply vs demand of a property.
Although education is foundational to success, don’t get caught in the trap of “analysis paralysis” where you fail to take action on your goals. Some people can over analyse a property and fail to take action based on the unknown of what may occur. Education is paramount and once established can enable the investor to identify what properties will work towards the investor’s objectives. Ensure you have the confidence in your understanding to take action when the right deal comes to the market and know how this will fit into your overarching plans. After becoming educated, starting your journey is just as essential. If you don’t start, there is a 100% chance you will fail. Sometimes, you have to do things you have never done before to achieve things you have never achieved. Be confident in your knowledge and understanding to take action
There are numerous considerations to think about when looking for an investment property. Firstly, consider taking a short-term approach in order to outperform the market average. This means you will need to adopt a borderless approach and narrow down your search from there. Don’t get caught in thinking you can only invest in your backyard. From here, note that your price point is not important, focus on the demand of a particular area. Finally, with the abundance of information don’t get caught up with “analysis paralysis” be confident in your decisions and take action. Implementing these considerations into your investment approach can assist to make better-informed investment decisions.