The 3 essential ingredients you need to profit from property
For anyone out there with cooking skills like my own, you will vividly recall the first and possibly even the last meal you cooked without following a recipe. For your information, mine was boiled steak with red wine sauce. I can confirm that when you mix ‘winging it’ with getting distracted watching 20-20 cricket on the TV, it’s possible to turn the best cut of meat into something that closely resembles a burnt prawn cracker. Author’s note: I’ve since found out you’re not actually supposed to cook (boil) the steak in the red wine.
Needless to say my ‘off-the-cuff’ cooking licence was revoked by my wife Nikki that fateful day! Luckily for me, there was an easy fix to this Sunday evening dilemma – Thai takeaway, a shoulder rub, and a promise to never again cook without following a recipe got me back in the good books.
One of the things I love most of all about cooking is that unlike many things in life, it’s a skill you can learn relatively quickly. And when you do fail, the results are rarely catastrophic. Throw in a couple of cooking lessons from a chef with years of experience, or a tried and tested recipe with very specific instructions to follow, and our success rate goes through the roof.
In my work in property, I’ve seen countless examples of boiled steak in red wine sauce. A result of well-intentioned people embarking on a quest to create their life’s fortune through property; without stopping to seek guidance from experienced others, or researching the recipe for successful financial outcomes, they risk significant amounts of their own wealth on a ‘hot tip’ from a mate at work, or they rush in to snap up a property the agent confirmed was a ‘renovators delight’.
The good news is that property is no different to cooking – once we put in the time, learn the techniques and follow the recipe – success will follow.
When helping our clients to identify great property investment opportunities the recipes we follow are not dissimilar to the butter stained family cooking recipes that are handed down from generation to generation. These are recipes we have been able to create through investment in an enormous amount of education, personal and professional experience, asking lots of questions, and most of all by spending time with successful property people from all around the country.
Distilling all of these learning, there are certainly 3 ingredients that matter more than any others when it comes to creating wealth when investing in property, i.e. the essential ingredients:
- Scarcity
- Affordability
- Change
To better explain how these 3 ingredients work together to produce the outcome we are seeking, I’ve provided some further context below.
The 3 essential ingredients explained:
- Scarcity: In the same way that the abundant supply of sugar and flour make them some of the cheapest cooking ingredients in the supermarket, price growth in all goods and services relies on an imbalance between supply and demand. In our investment research we are always looking for opportunities to invest in locations in which future supply of housing is limited (either through lack of available land or planning policy) and underlying demand will remain strong.
- Affordability: No matter the quality or ‘value’ of what we have to offer, growth in the value of property is only possible if the market, our future buyers, have the financial capacity to pay for what we’ve got to sell. As such we are always looking to invest in locations with historically low, and projected low levels of unemployment, easy access to high-paying employment, and diversified industry – i.e. locations that do not have a reliance on any one industry to support the working population.
- Change: From personal experience (you can read a story about this here) this can be one of the greatest ways to accelerate wealth creation through property. What we are looking for here are signs of, or opportunities for change. Things to consider are:
- Gentrification of the suburb or area;
- Scope to add value to a particular property through renovation, addition, or re-development; and
- Population growth: The belief that ‘if you’re not growing, you’re dying’ is a harsh but true reality here. Population growth will drive ongoing government investment in infrastructure, which leads to job creation, spurs private investment and ultimately makes a particular area a desirable place to live.
Getting the mix of these 3 ingredients right will ultimately ensure your investment ends up delivering the financial and lifestyle benefits you have been craving. Get it wrong however, and the fix will be a little more costly and time consuming than a trip to the local Thai takeaway and a shoulder rub.
Looking to invest in property but don’t know where to start? Join our community of investors and our team of experienced buyers agents will guide you on your quest to create real wealth. Please book a complimentary appointment here or call our office to make an enquiry.
The publications by Capital Property Investment Advisers are for general information only and are intended to assist you in understanding the nature of the property market. The information contained in this editorial is for Australian residents only. This editorial does not consider your personal circumstances and has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. This editorial does not constitute, and should not be relied on as financial or investment advice or as recommendations (expressed or implied) and it should not be used as an invitation to pursue any investments or investment services. No investment decision or activity should be undertaken on the basis of this information without first seeking qualified and professional advice. Capital Property Investment Advisers disclaims any and all duty of care in relation to the information and liability for any reliance on investment decisions, claiming the use or guidance of this publication or information contained within it.