Location, location, location: Is this really the golden rule of property?
Location is important to all property buyers, but what else do you need to consider when buying property?
Blogger: Veronica Morgan, principal, Good Deeds Property Buyers
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You have all heard the saying and hopefully you have all watched the show! But is it true that this is all you need to consider when buying property?
Location is of course important to all property buyers. Owner occupiers are interested in a location that gives them a sense of community, where they can feel like they belong. And then there is also the element of prestige and snob value that often can't be denied. Investors don't necessary consider these aspects, they are typically more interested in infrastructure and rental yields.
Choosing a location is only part of the equation. In order to maximise your chances of a property that will perform better when it comes to growing in value, you need to put a great deal of focus on the features that will make it attractive to future buyers. This challenges a couple of common assumptions amongst property buyers. Firstly, the belief that many owner occupiers hold that capital growth is not a priority. Secondly, the view held by many investors that competing for property is foolish. I also strongly challenge the view that property can be purchased solely on the numbers and I cringe when I hear of mum and dad investors buying property sight unseen in the next "hotspot".
You see, every suburb has a median growth rate, which means that half of the properties will grow in value at a rate higher than the median and half will be under-performers. If you are using statistics to determine where to buy, you really need to understand that there is a huge amount of capital growth variance within a location and then you need to develop an understanding of why this variance exists.
Now don't get me wrong, location selection is the crucial first step, but once you have decided on an area in which to buy you must spend time learning about the local property market. Firstly you need to understand the buyer demographic so you can begin to see the features that appeal to the most buyers.
Owner occupiers often say that capital growth is not high on their agenda, since they are thinking about their lifestyle and intend to stay in a new home for many years, maybe a decade or two. However we would argue that in 10-20 years when it comes to sell you may regret not focussing more on the importance of capital growth in the family home. This is not the stage of your life where you want to be confronted with your lost opportunities!
Apart from the fact that capital gain on your principal place of residence is tax free income, you will most likely have a large chunk of equity tied up in it, as well as having had years of commitment to a mortgage. Getting this purchase right can set you up, either for the next rung on the property ladder, or even for retirement. So at Good Deeds Property Buyers we advise our owner occupier clients to view their homes as an investment and buy accordingly. Be careful of emotional purchases! But also be aware that the ability to generate an emotional response from buyers is one of the elements that leads to good capital growth.
This is a double edged sword. The current owner could have fantastic taste and all that emotion is simply created by good styling. You need to be able to maintain that in order to preserve its value, let alone grow it. Alternatively there are many great improvements made to daggy houses and apartments that simply need a bit of a face lift.
I believe that both owner occupiers and investors need to look at the long term features of a property that will hold it in good stead when it comes to retaining buyer appeal. For instance: architectural style, workable floorplan, aspect and natural light. These are all worth paying for. The more transient features, such as shiny new kitchens and bathrooms, will lose value over time, so buyers need to be careful not to pay too much of a premium for them.
So back to the question of Location, Location, Location. Is that all that matters? I hope after reading this blog that you agree with me: it's an important part of the equation but not enough on it's own. If you ignore the type of property you run the risk of doing what is supposedly impossible: losing money in a prime location.
About Veronica Morgan
Veronica Morgan is principal of Sydney based Good Deeds Property Buyers and co-host of Location Location Location Australia & Relocation Relocation Australia on Foxtel’s The Lifestyle Channel.
Veronica likes to think differently about the real estate game and can do so because she understands the way it works from her own experience as a selling agent and an investor. She believes that there is no magic formula for success in property, there is no fast track to riches, but when the foundations are right it makes a very sound investment. Her goal is to educate property buyers so that they can make wise decisions and avoid costly mistakes.
Photo courtesy of the Lifestyle Channel
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