A question I am continually asked is, how do I select the right property for investment? The simplest answer I find is to compare it to any product out there. Basic economics tells us that price is dictated by demand and supply; this is true for anything from bananas, to the latest iPhone, to property. If demand outweighs supply than prices will increase and continue to increase as the gap widens, similarly if supply outweighs demand prices will decrease. As our growth is dictated by the price or value of the property it is important to know your demand and supply variables.
I like to describe Demand variables as things that make a place more liveable. Most people know what these already are, just consider the things you like about your area and then consider what you would like to have in area. Things can include as a start:
- Proximity to work
- Good Schools
- Public Transport
- Parks and Scenery
The more of these boxes you tick the more demand is likely for your area and property
The Supply side is the trickier part, we all know what people like but it is hard for the everyday person to know what the market is building and what impacts supply will have. Things to note should include:
- How much of particular product is being built in the area. Is there sufficient demand?
- What type of product is it, apartments, house and land subdivisions, town houses etc.?
- What is likelihood of oversupply into the future?
There are also variables that negatively impact Demand. Mining communities are a good example, what if the mine closes? Or any one industry reliant community, what if that industry goes into decline.
So as a simple rule: look for areas that will always be in demand, now and into the future. Be wary of supply, and try to imagine the area now, 5years from now, and 10 years from now. Imaging forward will often force you to analyse risk and visualise potential.
There are a multitude of things to consider when buying a property and these are just some basics, remember knowledge is usually the key to success. As a simple rule know your demand and supply, do your research, and talk to people better than yourself. Property is not like buying an overpriced banana, it’s likely the most expensive purchase you will make in your life and similarly could be the most rewarding.