Making money How do you make money out of real estate?
Every property owner who sells a house, apartment or dwelling of some sort would like to do so for more than they paid for it. So, do you make your money when you buy?
It’s important to keep the negotiations going.
Well yes, in a sort of way… but only if you absolutely buy the right property, which doesn’t necessarily mean that property was cheap, or a bargain because of the seller’s circumstances.
When you are 100 per cent focused on the future, you comprehend how transient prices and market trends are.
The location may make it a great investment or perhaps it’s because you can easily improve on its value with a bit of freshening up. Think ‘worst house in the best street.’ The ‘right property’ is more likely to be the one that delivers long term capital growth. That you make your money when you buy, not sell is often trotted out as advice. In preference is the notion that having seen the moneymaking potential when you buy, you only actually realise it when you sell. A preferred piece of advice is having seen the potential for making money when you buy, you only actually realise it when you sell.
But back to buying the ‘right’ property… It’s best not to focus on the purchase price at all. If you do, you could be in danger of missing potential though being fixated on how much you wanted to pay. Over the life of your investment, factors like renovation potential, suburb growth, subdivision and even street appeal can make up for the extra few thousand you pay.
You are looking at how much money that property might make you down the track rather than how much you are spending on it today. Would you keep $5000 or $10,000 in your pocket if you were looking at an investment property you knew to be in the catchment area of a new college to be built or a major spend on infrastructure had been signed off? If you are planning to hold on to that investment property, it would be a smarter move to get that money out on the negotiating table now.
That brings us to another consideration: how long are you planning to hold on to the property for? The buy-in price matters a whole lot more if your intention is to ‘flip’ the property. Price growth in the market and resale potential are far more difficult to predict if you are taking a short-term view. Look at the bigger picture, to the long-term, which is the winning strategy for most investors.
While nothing in property is certain, narrowing your focus to the short-term and obsessing over a few thousand dollars is unlikely to be a winning strategy in any market. Instead, look at the bigger picture and remember that the big payday will come when you sell the property.
Buy and hold strategy • Focus on location if you want capital growth. • Research the property and the area. • Take a long-term view on sale price over immediate buy-in price. • Have a plan and stick to it, with a savings buffer so you don’t have to bail if something unforeseen happens. • Understand where you’ll stand with capital gains tax issues in the future. • Remember that the value is in the land, which appreciates while a house will depreciate as it ages.
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