Best Case Scenario
30 October 2015
The questions buyers bring to every property they inspect are Will it be a good investment?
and Will I get reasonable capital appreciation when I sell?
Uppermost in people’s minds is finding a home that suits their needs, but the underlying
rationale is nearly always investment potential.
And why not? With inflation eating away at salaries and savings, housing is one of the few
commodities that, wisely chosen can keep the consumer ahead. The crucial phrase is of
course, wisely selected.
In terms of capital growth the best case scenario is not always the best place scenario.
Attributes related to the land (proximity to desirable amenities, size, use, aesthetics,
absence of negatively impacting neighbours and just plain old area appeal) carry more
weight in determining the value of most properties than the actual building on the land.
For example an upmarket home on a negatively impacted block may have less value than a
small home in a sought after area.
Buyers can make an informed decision once they’ve researched the
selling prices of a big enough sample of properties.
Get to know the pattern of sales activity for the area in which you are shopping. Play it safe by not buying too far above the median price for the area.
This is where the highest demand and turnover will be. Many people are tempted by the
apparent cost saving of being able to build a big home if they buy a cheap block of land
or by the fact that it appears cheaper to add on to their current home than move to
another one. But in the long run they are more likely to afford the bigger home by buying
location and letting a combination of increasing values and equity finance them into a
bigger home over time.
There are exceptions to the rule and many people opt for
immediate lifestyle choices rather than sure capital gain.
It is a real estate cliché that the best purchase in investment terms is actually the worst
house in the street or area. Such homes can usually be improved
without over-capitalising - provided you know what prices are being achieved for similar
properties and don’t exceed that limit for renovations or extensions.