Think like an investor
While
it’s unlikely that experienced home buyers will buy a home that they don’t
like, the same is not true of experienced property investors. Yet many novice
property investors report that they have difficulty buying something they don’t
‘like’ even if it is a good sound investment.
Many
investors make it harder for themselves than they need to by being
unnecessarily emotional about their purchases. They see their investment properties
as an extension of their own home and indulge in the same feelings of pride of
ownership. It is not uncommon for novice investors to turn down a property with
terrific investment potential and strong rental demand just because they
themselves couldn’t live in it.
Some end up buying what they consider to be a ‘nicer’ property, only to find
that the tenants have different priorities and will choose more basic
accommodation in order to be say, closer to amenities or to save on rent.
Remember that many renters need to use public transport, and that the proximity
of shops, schools and transport may weigh more heavily with prospective tenants
than a flash kitchen. Not only that, buying something that you need to charge
above median rent for may end up in increased vacancy as tenants (often saving
for a home of their own) would rather economise now for benefits further down
the track.
The strongest demand for both re-sale and rental is
usually, by very definition, around the median price in any marketplace or
location. Those who choose to invest in the luxury end of the market are
usually the first to be hit by any economic downturn. Much of the luxury rental
accommodation available is leased by corporations who, in poorer economic
times, can no longer justify the cost of accommodating employees in high rent
areas. And high income earners are unlikely to commit to large mortgages or
rents in a climate of economic uncertainty with the possibility that salaries
or jobs could be under revision.
Median priced properties - those in what you could call middle range of the
market - are not as badly affected and usually give their owners the best long
term return. If they lose some demand from their usual occupiers because young
people move back home or families scale down to smaller or cheaper accommodation,
they pick up tenants or purchasers who can no longer afford the luxury markets.
