You might have heard before that the three most important factors for selection of a property are location, location, and location. Why is that so? Because a property in an excellent location will be easier to rent out, easier to sell, fetch a higher rental income and sales price, and appreciate faster over time. Plus, the banks are more likely to give you a better financial deal on the loan.
What should you be looking out for to find a property in the right location? There is no absolute right or wrong, but here are some pointers:
- Popular areas with proven track record of consistently high-rental demand
- Mid-size or big cities, especially those where the population is growing (people moving there, divorces)
- Good infrastructure (e.g. near highway, access to public transport) exists or is confirmed to be built soon
- Near popular schools or universities
- Up-trending areas that are already appreciating in value (e.g. suburb just outside of city centre as centre expands)
- Beach-front property in cities (not in remote areas)
- No “turn-offs” nearby
Some people also say that timing is equally important as location. If you select the right market segment and area (which also comes down to location), the timing aspect becomes less critical compared to the location.
Is She Pretty?
When I say “she” in this slightly provocative heading, I mean of course the property that you are planning to acquire. Boats have female names, so why not property? In fact, it is even a good idea to give your house (if it is a landed property and not a flat or condominium unit) a name and get a fancy signage. It makes “her” special and stand out from the surrounding houses.
But does “she” have to be pretty? Definitely not! Often the best opportunities are in the “ugly ducklings” that might either be in a superb location or might be a run-down house that you can acquire cheaply, build up, and sell for a good profit. You do not have to like the property that you buy. Remember: Don’t fall in love with your property, just fall in love with the numbers.
When Do We Make Money?
Your immediate response might be: When we sell the property for a profit, of course. From a pure cash flow in your bank account perspective that is true. As a good investor, we should, however, make money right on the day we BUY the property.
How is that possible? Simply by buying your property below market value! For example, if you buy a property worth $100,000 for $80,000 you have instantly built up equity of $20,000. That gives you a cushion for market price fluctuations as well as improves your RoI (Return on Investment) since you have a lower purchase price, but that does not affect the expected rental or sale price.
Some other fundamentals I would like to mention here are that you should always stay prudent in your investment decisions. Neither complacency, nor over-confidence after a few good deals will do you any good. Also it is critical that you manage your risk.
Diversification is a somewhat contentious point. Some investors prefer to know one selected small area extremely well and concentrate their investments in that area only. Warren Buffet says: “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” On the other hand, many experts propagate diversification so that in case there is an issue with that area or segment, your other investments don’t get affected, i.e. you “don’t have all your eggs in one basket”.
The Property Apprentice Master, Jochen Siepmann, wants to share the wealth of his knowledge easily and effortlessly with you for FREE. Start your journey now to greater wealth through passive real estate income and capital appreciation with one, or all, of these FREE offers: