I have said many times before that the performance of a property investment and the function of the entire residential property market comes down to two key functions:
1) The amount of money somebody is able to pay for a property (quantitative)
2) The amount of money somebody is willing to pay for a property (qualitative)
It really is that simple. The challenge is digging deeper into what these two points actually mean and applying it in the right way. For this reason, they say that property economics is both an art and a science.
Today we are going to look more at function two; the amount somebody is willing to pay for a property.
Over a full property cycle, we know that typically 70 per cent of purchasers are owner occupiers and 30 per cent of purchasers are investors. What is even more important about this is that owner occupiers are those that are willing to take the extra step to purchase a desirable property because the decision is being made emotionally.
So it should. This is to be their castle. We need to understand this and play it to our advantage as property investors.
A frugal investor needs to respect this phenomenon, as well as understanding that the price that they are paying for a property today is not the most important factor.
For example, would a 55 square metre, two bedroom, south facing, first floor apartment looking into an adjacent building for $580,000 be better value than a 70 square metre, two bedroom, north facing, top floor apartment with city views for $700,000?
I have seen investors make this mistake time and time again to their detriment, typically fascinated with being below the median sale price of the suburb. Knowledge is power in the game of economics and it pays to play beyond frugality.
Ultimately, one gets what they pay for!