When Cheaper Property Prices Do Not Make For Smart Buying
Here’s a tip that’s going to be especially useful as we begin to see COVID induced cracks appear in parts of Sydney’s Eastern suburbs property market.
Buyers sometimes approach me to appraise a property and when I ask them what they love about it they respond with ‘the price’.
Markets intrinsically price in quality. A second-grade property in a problematic location will not only struggle to achieve strong capital growth in the good years, but its value will also fall faster and further in troubled times, and this may well be what you’re seeing when that ‘cheap’ property pops up.
Yes, there are price anomalies but you are more likely to uncover these by considering quality first and then assessing the price.
An effective strategy to buy well is to search for the best quality property you can afford in the current market. A property that is resilient in uncertain times will certainly reward you in the future.
Consider a blue-chip property purchased for $900k that enjoys a 6% average annual capital growth over 10 years versus the ‘cheap’ property purchased for $800k that grows 3% annually over ten years.
Ten years from now the $900k property would end up worth $1.46m. The ‘cheap’ property? $1.075m.
In this example the cheaper property purchase has generated $275,000 equity and the more expensive better quality property has generated $560k. If we run the same example over a twenty year time frame the $800k property will be worth $1.445m and the $900k property will be worth $2.88m
So you can see how a cheap property could end up being a very expensive mistake over the lifetime of your holding.
Many property purchasing strategies may seem counter intuitive, including using a buyer’s agent. A reputable Paddington buyer’s agent familiar with the local market may seem like a significant cost but will prove itself to be a valuable investment and a wise decision Initially once your ideal property has been secured, then many times over the lifetime of your tenure.
Like so many do it yourself efforts, when it comes to buying property it is best to get it right the first time.
As Warren Buffett famously said- “price is what you pay, value is what you get”.