The most important aspect of property investment
Property investing is a numbers game. The winners are the ones who can be honest about what will actually occur. They will be the ones smiling like a Macleans pinup.
Blogger: Dean Berman, 37 Property Group
The losers are the ones who become emotionally charged and connected to what is effectively an 'inanimate object' i.e. a house with its nice new painted walls, shiny tiles and 'light open spaces'. Emotions are more powerful than logic.
On contemplating 'the most important aspect of investing' many are sidetracked from the fundamental point of property. They feel "I should be buying property as I'm earning good income and need tax breaks" or "I could potentially live in the investment in the future in case I want to sell my current residence"...Fundamentally, such points are unrelated...mute.
The approximate median dwelling price for the 5 major Australian capital cities is $460,000 based on RP Data's March Press Release. This means approximately 50% of all dwellings are below or above this figure in these capital cities.
This brings us to the question and subsequent answer. The question posed highlights that 'price' is the most important aspect in any property investment. The most significant outlay is occurring during purchase time and it is this time when the price must be correctly determined and acted upon to maximise current and future potential. If this is done correctly, you will feel like Einstein discovering relativity and place yourself in the best possible position for strong rental returns and equity gains.
Lets look at two differing real life scenarios for the exact same property:
Scenario 1: You purchase a $460,000 property at ($480,000), $20,000 more than you wanted too.
Scenario 2: You purchase a $460,000 property at ($440,000), $20,000 less than you expected.
Though property valuation is an 'art and not a science', let's assume a $40,000 difference between the two exists. If the property rents at a fixed $500 per week either way, your long-term gross yield will be vastly different. The $480,000 purchase will be 5.4% per annum while the $440,000 purchase will be 5.9% per annum. This is significant. Over the first year you will have gained 0.05% just from a lower purchase price. Looking 10 years down the track you will be up more than 5% due to compounding. This is more than $20,000 which can help towards holding a number of properties, enable greater borrowing or even provide a passive income while you relax.
Instant gains or potential gains are significant through either renovation, development or just purchasing in a market due for strong growth. If this sort of outcome can be achieved then you will be in a much faster position to purchase the next property and continue building your ideal property portfolio.
Next time you purchase a property at the correct price, think of Larry Emdur and shout in your loudest voice, "The Price Is Right". You have just put yourself in the best possible position to become wealthier.
About Dean Berman
Dean Berman is a lover of property and Director of 37 Property Group, a property investment company and buyers agency focused on helping clients amass substantial property portfolios. Dean is a licensed Real Estate Agent.
His goal for 37 Property Group is to implement his research knowledge and investment fundamentals studied in a Bachelor of Property Economics and Diploma of Financial Planning to help clients become truly wealthy through passive income and long-term growth.
He understands the busy lives of modern Australians and provides a service which is efficient, individualised and incorporates a professional and fun atmosphere. Surrounding 37 Property Group is a mixture of highly skilled professionals to provide convenience and smooth assistance in the wealth building process.
For more information on 37 Property Group https://37propertygroup.com.au
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