Donald Trump makes billions of dollars purchasing run down or vacant properties and in fact, whole blocks of residential properties and building fantastic complexes on them.
Top entrepreneurs make billions of dollars buying into troubled companies and turning them into financial powerhouses.
There is a theme here. If you look closely at the strategies of successful investors you will find a strong principle hiding in all their actions.
On the other hand, if you look closely at the strategies of struggling investors you will really find them not understanding or using this principle.
So what is this principle and how can you profit from it?
It is the law of supply and demand.
If you remember that supply and demand creates growth in real estate values and growth in rent, this will help you become a more successful investor. It will separate the good deals from the bad.
One way to make this all work for you is to buy properties that are in high supply and low demand and turn them into properties that have are in low supply and high demand.
With residential real estate the best way to increase demand is to make your property more desirable.
This is a property investment strategy we use at Metropole when buying older, rundown properties and undertaking renovations and making the properties more attractive. This increases the demand, as well as increasing their capital value and increasing the rental.
In these changing property markets, our recommended property investment strategy at Metropole is to buy a property below its intrinsic value in an area that has always had above average capital growth and one to which you can add value.
One example of this is the property bought for a client by the team at Metropole Property Strategists in Brisbane.
We purchased a great 2 bedroom unit for Michael & Kristen in a lifestyle suburb of Brisbane which has always shown above average capital growth.
The property was in what is considered to be a trendy area, close to shops and transport and in an attractive block; but really wasn’t appealing in its current state. The apartment was “tired” and run down.
We managed to negotiate a great price on the property, and organised access for the builder prior to settlement to do his preliminary works.
The day after settlement, the builder moved in to give the unit a total overhaul. In general we suggest spending around 10 – 15% of the value of the property on renovations. For this you Michael & Kristen had their property got a total overhaul. They got a new kitchen and bathroom, new carpets, a new split system air-conditioning, a new coat of paint … in fact a complete makeover.
The rent prior to the renovation was $145 per week. After the makeover the rent jumped to $250.
While the property has not been revalued yet, for every dollar they spend Michael & Kristen should increase the value of their property by around $1.50 or more and they would now get some substantial depreciation benefits.
This is a great way of manufacturing your own capital gain – buy below intrinsic value market value, add value through refurbishment and ultimately create a property with high demand.
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