Property valuer, investment adviser, market commentator and author Anna Porter identifies several drivers that differentiate a home purchase from an investment property purchase and explains why knowing the difference could be the key to success.
As a qualified property valuer and principal of advisory business Suburbanite, Ms Porter works with homebuyers, corporations and residential and commercial investors who want to buy and invest well through strategic planning but haven’t got the time to do all the research and due diligence required.
According to her: “It's about strategy and how to get that right and how to avoid costly mistakes. We help them see what makes some markets perform and what makes other markets not perform.”
While they have both owner-occupiers and investors as clients, Ms Porter sees to it that they are provided services tailored to their needs.
“It's a very different approach,” the property expert highlighted.
“There's only so many times they can walk someone through a home and see if they like the shape of the window or the aspect, but investing's about the numbers, the analytics, the fundamentals.”
Ms Porter cited her own home-buying experience as one of the best illustrations of the difference between buying a home and buying an investment property.
Not surprisingly, a few people came up to her and asked her why she was buying in the softening market of Sydney when she advised investors to stay away from it as it hits the peak of its market cycle.
“I said, ‘Hold on a second—I bought a home to live in. Probably paid too much in a market that's overpriced at the wrong time, but I've invested really well over the years, so I now have the luxury to make stupid decisions with my own home.’ ”
“What is the view worth? Where do I like to sit and have my coffee in the morning? What's it worth to have the kids go to the school two streets from where we live or the boat ramp my husband loves down the road?
“All those things, to us, are worth money and if we hadn't invested well, we wouldn't have the luxury of making those emotional decisions. That's what home buying is compared to investing,” Ms Porter explained.
Essentially, shaping decisions for purchasing a home and purchasing an investment property entails different elements as you, the buyer, decides whether the property is a place to live in or a place to create wealth from.
While homebuyers could do with following their hearts when purchasing a house, a lot of investors, particularly those who haven’t been in the market for a long time, find it hard to take emotions out of the equation when looking for a property.
Even if they plan to put the property up in the market for rent, they can’t help but think about what it’s like to live in the property rather than focus on how the numbers stack up.
Although there’s nothing wrong about considering the liveability of the property to ensure demand, some investors tend to get lost in their emotions.
Ms Porter said: “We get that all the time, and what I often say to our clients is, ‘If I let you make an emotional decision around your investment, such as ‘Would I live there, or do I like the façade, or is the colour of the paint’, I would be doing you a disservice because you would buy the wrong property for the wrong reasons.’ ”
“On the other hand, for homebuyers, I say, ‘If I talk you out of a great home that suits all your needs because it's not a great investment that year in that market, well I'd also be doing you a disservice.’ ”
How exactly do you differentiate the decision-making processes of buying a home and buying an investment?
As difficult as it may seem, Ms Porter said that the difference between homebuyers and investors lies in the investors' need to quantify the fundamental factors that make up a house.
For instance, homebuyers consider the location of the house in relation to infrastructure for the safety and comfort of their family, whereas investors consider location to ensure that the growth of the value of the property moving forward.
“There are very different drivers and homeowners and investors often don't get that right, but there are things that you can actually quantify.”
“When people say, ‘I really like the feel of this house, I really like the location’, all of those things are actually quantifiable. They have a value attached to them. The good feel of a home, that's a very general term that can be deduced to a nice finish, good floor plan, good natural light and those things are quantifiable.”
Where appropriate, Ms Porter encouraged investors to seek the help of property professionals so they can gauge how the property will perform in the market moving forward based on the elements present—from the proximity to transport and infrastructure to the interior of the house.
“It's our job to take these elements to a level where it's quantifiable. There’s a difference between a homebuyer letting go of a home because it’s lacking privacy, has poor natural light and isn't in a good street versus investors letting the same property go because those elements will have the property unable to perform well in the market compared to one that does tick all the boxes.”
At the end of the day, looking into the liveability of the home isn’t necessarily an emotional decision but a valid consideration to determine the value of the property and its wealth-creation potential.
“It's not about making emotional decisions, but it's making the right decisions with the things that should be quantified because those things will still often sit as fundamentals behind good investment decisions,” Ms Porter concluded.