How to select a property like a professional buyer would

When looking to buy a property, most buyers click on a few real estate websites looking for a property ‘they fall in love’ with and then they go and inspect to confirm their love before making an offer and having  it hopefully accepted.

On the other hand, a professional buyer take a strategic approach to research to make their property success consistent and reproducible – and this also stops emotion creeping in.

How to research like a pro?

Firstly, it's important to always start with big picture and then drill down to the what you want in the property.

That's because your property’s location will do 80 per cent of the heavy lifting when it comes to its future value and then choosing the right property in that location will account for about 20 per cent of its performance.

Rather than doing the type of research most people do and looking at how a location has performed in the past, look at the factors that will drive the locations performance in the future and these include:

•    Demographics and population growth
•    Economic and employment growth, which leads to wages growth and the ability to afford properties
•    Infrastructure growth
•    Supply and demand

Also look for multiple growth drivers because over the last decade, we seen the end result of those buyers who chose areas with a single growth driver or single economy, such as the aftermath of the mining boom.

Similarly, I see people who say they're going to buy in areas where a big hospital is being built, but again this is only a single growth driver and, in my mind, isn't sufficient to make the area one that will outperform in the long-term.

The lesson I’m trying to get across is that there need to be multiple growth drivers to underpin your property’s long term performance. This means that if one or two of these falters for a while, there are other factors supporting your property’s performance.

And it’s all happening in our capital cities.

In the foreseeable future most of the growth drivers, particularly economic ones during the good times and the bad, will occur in our capital cities and over the next couple of years two thirds of Australia’s economic growth and population growth are likely to occur in Sydney and Melbourne.

However, just because you’ve found an area that's likely to grow well in the future, that doesn't mean that every property in that location will be an property with growth potential.

To ensure success, always select properties that will outperform the general market, you can follow two suggested strategies.

Top Down Approach

This starts with examining the macro factors affecting our property markets and drills down to the micro level.

1. Start by looking at the macro-economic environment – the big picture of how Australia’s economy is performing.

2. Then look for the right state in which to invest – one that will outperform the Australian market averages because of its economic growth and population growth. Also, buy in the capital cities and not in regional areas, because that’s where the bulk of the jobs will be created and where most people are going to want to live in the future.

3. Then within that state, look for the right suburb or group of suburbs – ones that has a long history of outperforming the averages.

And it’s all about demographics, growth potential suburbs tend to be areas where more owner-occupiers want to live because of lifestyle choices and where the locals can afford to and will be prepared to pay a premium to live because they have higher disposable incomes.

In general, they’re the more affluent inner- and middle-ring suburbs of our big capital cities, so check the census statistics to find suburbs where wages growth is above average.

4. Then look for the right location within that suburb. Some liveable streets will always outperform others and in those streets, some properties will always be more desirable than others and outperform as investments by increasing more in value.

5. Within that location look for the right property, use the below mentioned 5 Stranded Strategic Approach to find that special property.

6. The right price, but by no means a “cheap” property – there will always be cheap properties around in secondary locations. I mean the right property at a good price.

5 Stranded Strategic Approach

Once the right location is found, the next phase of the research is to find the best property for you to buy using the following steps:

1. Only buy a property that appeals to owner occupiers. Not that you plan to flip the property, but because owner-occupiers will buy similar properties pushing up local real estate values. This is particularly important in the current market when the percentage of investors in the market is likely to diminish.

2. Only buy a property below its intrinsic value – for this, avoid new and off-the-plan properties, which come at a premium price.

3. In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area. Look for a property with a high land to asset ratio – where the land component (the part that increases in value) makes up a significant part of the property’s value.

4. Also look for a property with a twist – something unique, special, different or scarce about the property, and finally.

5. Only buy a property where capital growth can be manufactured through refurbishment, renovations or redevelopment rather than waiting for the market to deliver capital growth.

While most property buyers read a book or two, do a little research and then buy one of the first properties they come across, strategic buyers are much smarter than that.

They follow a system that is rooted in the real world and has stood the test of time in changing markets, which enables them to minimise risks and maximise gains.

Each strand represents a way of making money from property and combining all four is a powerful way of putting the odds in your favour.

If one strand lets you down, you’ll have two or three others supporting your property’s performance, ensuring your properties always outperform market averages.

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This article via Property Update does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.