Most property investors recognise that you make your profits when you buy your property. The big question then becomes…
How do you determine what I would call the ‘fair market value’ of a property or more importantly how do you know when you have the right investment property to buy?
I suggest you initially focus your time and efforts to a narrow market area and develop an “investment comfort zone.”
I’m in the property market all day, every day and I’m not comfortable with my knowledge of all the areas of Melbourne, so even I specialise in certain areas.
Maybe you should follow these steps to develop an “Investment Comfort Zone”:
1. Establish a geographic territory
Decide where your investment zone will be. Begin with an area which has a long history of high capital growth.
Also look for areas which offer good rents, low vacancy rates and a high desirability factor for people to live.
And of course the area must be one that contains affordable properties (properties within your price range.)
South Yarra and Toorak, or Double Bay and Darling Point may have good capital growth, but it’s no good looking for investment properties in these areas if you can’t afford that price bracket.
2. Become an expert in that territory
Learn all you can about your chosen territory. While becoming an expert is very simple and basic, most property investors have never taken these steps.
Get to know the following about your investment territory – price ranges, rental market data including vacancy factors, future road plans, future developments in the planning stage, local employment statistics, employment trends and major impacts that may affect it.
The location of local private & public schools is very important.
Become familiar with public transportation routes, local council town planning and zoning rules and regulations.
Where does all this data come from?
Today accessing this type of data on the internet is easy, but most importantly you get this data by doing legwork.
Going to lots of “open for inspections” and auctions to gauge property prices. And not just asking prices, but actual prices achieved.
If I were you, starting to become an expert in my comfort zone, I would get to see as many properties as I could, until you know the area like the back of your hand.
I’d carefully analyse at least 100 properties before I would feel comfortable that I knew an area well.
3. Build your investment techniques required
While you are learning about your geographic comfort zone, you should also learn the other skills you will require such as negotiating techniques and understanding finance and tax laws as well as risk minimization.
These will become the tools to building your multimillion dollar investment portfolio.
4. Act on opportunities
When you get the feel for your comfort zone, there will be a sudden shift of what you actually see. You will know when you have found a bargain.
Opportunities in real estate are rarely so obvious that they have a sign outside them saying “opportunity of a lifetime.” Frequently it’s the subtle things that give a property potential for a great investment. Things like the potential for renovations which can improve its value.
Once you get to know your geographic territory like the back of your hand, opportunities will stand out to you.
And when you find that ‘right property’, that property that will make a good long term investment and your friends say you were lucky, you’ll know different.
You will know why you were able to pick that property as different from all the others. It’s because you have done all the hard work developing an investment comfort zone.