Defining Your Property-buying "Why" - March 2023
March 22, 2023 / Written by Rich Harvey
Most people love to set goals and chase them down… but it’s human nature to run out of steam during the pursuit too. For example, it could be a health kick which starts with good intentions but never gets out of the block, or even some small fix-up jobs around the home that are easy to ignore.
All our motivation dissipates and thoughts of continuing feel insurmountable.
But a primary strategy for building and maintaining momentum was popularised by author Simon Sinek. It’s about defining your “why” and it can be applied to property buying.
Taking the time to ingrain your “why” before you start the purchasing process helps focus your search and bring about the best possible results.
Why start with “why”?
At the very beginning of the real estate search – before you even open a listing portal or drop into an agent’s office – there’s a window of opportunity where you have clarity of thought. The complex issue you will eventually struggle with around compromise and acceptance are in the future. All that white noise is silent, and you can ruminate about what lays ahead.
Use this time to understand exactly what sort of property you need and the reasons you’re choosing to get in the game.
The first part of this is simple – are you looking for a home or an investment? From this rudimentary self-analysis you can begin to establish your mindset.
If you’re buying an investment, you should have no emotional tie to the asset. This is a purely transactional endeavour. You are looking to spend a certain budget in return for a mix of yields and capital growth. This property doesn’t need to be the sort of home you’d want to live in. It should be one that will attract strong renter demand and garner plenty of interest among future buyers so you can realise the capital gains.
Your “why” as an investor is to maximise returns – pure and simple.
Often the relationship between the rental return and capital growth is inverse. Normally, the higher the rental return, the lower the capital gain potential, and vice versa. You must take
this into consideration, especially with how that predicted financial performance will fit within your existing portfolio and investment strategy. If you’re a new investor for example, you might look for something that generates a little extra rental yield to help service the debt. A more mature investor might be willing to forgo higher rent in lieu of greater value upside.
Whatever the reason, know why you are buying the investment, define your criteria and stick to your guns.
The “why” for buying a home is completely different and, in some ways, more complex than purchasing an investment. The emotional value you place on a home can influence your outcomes but understanding your “why” will keep you focussed.
It could be the first piece of real estate you ever purchase. It might be a place for you and your growing family to shelter and share. It may be the property where you and your significant other look to spend the empty-nest years.
It’s useful to first define what sort of buyer you are – first time, young family, growing family, empty nester, downsizer/rightsizer etc.
With that as a foundation, begin setting out what you want to achieve from the home as a big picture. Will it be to renovate and extend as the kids get older? Best look for something with potential. Will it be a property you will turn into an investment once you move out? Seek something in a location with good tenant demand. Could it be a property you only live in for a few years before selling in retirement? Look for strong capital gain potential.
Knowing your big picture plans means you have a “why” which can lead to a list of “must haves”, “nice to haves” and “never haves”.
“Must haves” are characteristics the property must include or it’s a deal-breaker for you. It might be two separate living spaces with kid’s bedrooms on a different level. It could be a flat block of land with a no-stairs house. It might be a completed home that needs no additional upgrades.
“Nice to haves” are elements you consider desirable, but not crucial. “Nice to haves” are your self-negotiation points. For example, a pool would be great, but isn’t essential. Walking distance to a café might be nice, but a short car trip will be fine too. Ensuited rooms for the kids would be special, but they can share if needs be.
“Never haves” are those components that are absolute no-nos for you. If a property crosses your radar with a never-have facet, you will happily delete it from the list and move on. “Never haves” might include no impact from flooding or power lines. It could be no main road frontage or anything less than 400 square metres of land.
By working your way through these lists, you can quickly work out what properties are worth your time.
Finding your “why” and applying it to your search criteria is key to securing the right property for your needs.
That said, it can be tough working through the options on your own. Instead of wasting valuable time and money, why not employ a buyers’ advocate to do the heavy lifting. The right BA can assist in defining your “why” and setting out the standards you’ll require in a property. They can be both a sounding board and a font of ideas. Combining their skill and networks with your needs as a buyer is sure to deliver the best possible outcome.
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