Buying fundamentals
March 13, 2018 / Written by Rich Harvey
By Rich Harvey, CEO and Founder propertybuyer
Anybody with a keen interest in real estate will have undoubtedly heard the phrase “stick to the fundamentals” as a catch all for low-risk, high-long-term gains.
It’s often used by commentators as an easy fall back when a journalist asks a hairy question – for example:
Q. Noting the substantially oversupply pipeline created by pending development in the attached high-rise housing space, particularly in the face of falling interstate migration, what is your position on the short-term implications for out-of-town investors involved in the sector as their loans move to P+I?”
A. "There’s certainly some concerns around this, but if purchasers continue to stick to the fundamentals, they should avoid long-term danger and mitigate risk.”
See! It’s a magic wand that’s able to repair a damaged market!
While the above example is tongue-in-cheek, the fact remains there is something special about “buying the fundamentals” when it comes to property.
The key is to ensure you’re holding has elements that will maximise the potential number of buyers keen to put in an offer when it comes time to sell.
Three important characteristics
Location, location, location isn’t the be-all and end-all… but it’s pretty close!
Location is a prime determinant in property value resilience.
A well-located property will outdo most of its other shortcomings and, in turn, shore up your investment dollars.
As a start, prime capital-city real estate is located as close as possible to its CBD, with ready access to services and facilities (including transport) a must.
If you have a holding that provides a short-jog to town and is within a 5-minute walk of terrific cafes and restaurants, while also being close to a train station, then you’re on to a good thing.
If it’s also in a desirable school district, then shut the gate and buy it!
Many of the same rules apply to regional locations too. Centres with a solid multi-industry economy are far better than one-horse towns. If they’re a major service centre hub for a region, even better.
Position, position, position
This follows on closely from location.
With position, I’m referring to where your property sits within its particular suburb and how it’s impacted by surrounding land uses.
Being on a main road and/or backing onto a train line is seen as no-no by many buyers.
If there’s neighbours like a service stations or light industry, then be very cautious.
On a more positive note, your holding may have elevation, aspect and views enhancing its saleability. If the eye-candy outlook stretches to the horizon and captures a city skyline or expansive water then you’re on a good thing.
Position is what sets blue-chip real estate apart from second-rung holdings in the same suburb.
Suiting your market.
While shortcomings related to a property’s structures can often be overcome by location and position, smart buyers make sure homes have the right bones to attract the next set of buyers.
Check your potential acquisition suits the local buyer demographic – or at the very least, can be easily adapted for them.
For example, one bedroom investor units in an underserviced, outer-fringe estate will have a hard time getting buyer traction if they’re not supported by a strong renter source like a hospital or university.
In addition, the worst house in the best street is fine, but if it can’t be easily adapted to appeal to family buyers in an upwardly mobile demographic, then you might be in strife.
Classic and unique
This is not a recommendation to buy the only galleon ship shaped house with the gold and silver painted finish in your suburb.
If you buy appealing property that’s in short supply and high demand, you’ve improved your chances of long-term capital gains.
Classically appealing homes always attract buyers while architecturally brilliant design can also be a winner – just avoid anything too avant-garde
Equity extras.
Investment that provide an opportunity to manufacture equity gains always finds a ready market of buyers with an entrepreneurial bent.
Double blocks with easy split potential are a great example, as is larger sites with long-term redevelopment options.
Renovation prospects also appeal – just ensure you carefully calculate the cost-benefit analysis.
In some locations, a highset home that provides an opportunity to build in under will appeal to young families as the property can grow with them.
Fundamentals aren’t hard to comprehend, however the list of elements that influence the appeal of one property over another property can be extensive.
Spotting the fundamentals and how they apply to particular suburbs takes a keen eye and the experience to recognise what has the best upside potential.
