‘Property investment is easy’- This is one of the most conceded property investment advices that has commonly been touted as the best advice. 50% of those who enter the property investment market usually end up having to sell their investment in the first 5 years while the majority who manage to hold onto their properties, usually end up owning only a property or two. Hence, their goal of becoming financially independent through this form of investment is not realised.
To make things clear, property investment is simple, but not easy. Simple, is if a proven investment method is followed, but difficult in the sense that you may not earn your fortune through property investment if you hop on the bandwagon like everyone else. Most investors focus on cash flow or the next ‘it’ property, however, successful investors do it differently- they emphasise on building an asset base.
To build a strong asset base, it is important to buy properties which have more potential in outperforming the market averages. Here are 5 approaches to buying potential properties:
1. Buy properties that appeal to long-term/ own-stay buyers
A large percentage of home buyers are those who intend to buy a home and stay in the long run. By knowing how to target this section of the market, you can ensure that your properties are in demand.
2. Buy property that are below their intrinsic value
The intrinsic value or actual value of an asset is determined by underlying perception and all other tangible and intangible aspects of it. Newer properties, for instance, maybe be valued higher than its intrinsic value, so the price you pay may not be worth its temporary high price. Hence, buy a property at a price below its intrinsic value, that way you can be sure that you are not paying more than its actual worth.
3. Buy properties in an area with a long history of capital growth and a high potential for future capital growth
Take the time to evaluate the demographics in an area and focus on whether the community in the area have the potential for an increasing disposable income or whether the neighbourhood is becoming gentrified.
4. Buy properties which are unique
Look for properties which have a special feature, concept, or facility, anything that is not commonly found in other properties. That way, you can gain an edge and differentiate your asset from the rest.
5. Buy properties which can increase in value through refurbishment works or redevelopment
Properties which are older or in less than ideal conditions can be refurbished to increase its value.
By branching out into different directions and aspects of property investment, you are not putting all your eggs into the same basket and therefore, minimising risk.
Now for the good advice...
1. Always have a cash buffer
The saying “save for rainy days” also applies to property investment. The property market is cyclical in nature and will have their ups and downs. This could be times when interest rates are high or when you encounter sudden repairs/maintenance expenses. During the down period, you will be glad to have a cash on hand to pull you through. Setting aside a buffer to wade through a storm could differentiate you at the crucial moment when other investors have to sell off their properties.
2. Treat your property investments like any other business
Those who do so usually do their research to be better informed and set up the correct ownership while knowing how to better take advantage of the taxation system. It is fair enough to enter the property market with one property and then leverage off the capital growth of that first investment to fuel subsequent investments, that way, you can see your property investment becoming a true business.
All in all, it is best to build your wealth by growing your properties one at a time and also branch out into other methods of earning from properties to minimise your risks. This way, you will ultimately stand the chance to gain financial freedom from property investment.