One thing that annoys me about media commentary is the constant reference to "the property market". It suggests the whole of Australia moves as one macro market, when in reality there are a huge number of micro property markets that move independently.
What does that have to do with the reason people buy property? Well, as a Property Developer, at some point you're going to end up with properties to sell.
Understanding who the buyers in your area are, and their reasons for wanting to buy a property, can make a big difference to what kind of end product you develop. Knowing your target buyer is one of the most important parts of successful property development. You may even discover your development strategy doesn't suit that area at all and go elsewhere.
Basically, the last thing you want is to finish your development, only to find you've built something that just doesn't fit the needs of buyers in the area. That's a great way to watch your profit start to go down the gurgler.
Which takes us back to the original question - why do people buy property?
Capital Gain
Let's get real here - a large number of Australian property investors buy with the expectation of making a nice chunk of change as the property rises in value over time. This has been the standard scenario for a long time now, and there's no reason to assume it won't continue.
Now, note I said investors, not developers. As an investor, the plan is to hold the property for many years, so any short-term drops or flat spots will eventually be overtaken by price rises.
If you're in a position to do this, it's a very simple strategy, particularly if you don't want to be actively involved in doing "stuff" with property. Sit back and wait however many years it takes for the property to grow enough for you to sell or refinance and turn that gain into cash. Rinse and repeat.
Even better, investors can be a little more energetic and spend time picking areas to buy where their chances of a good capital gain are enhanced. That's a great way to achieve increased equity quickly. This is why suburb selection and market drivers matter so much in real estate investing.
Cashflow
Yep, we're still talking about investors as buyers. This time, though, it's about what income they can get from the property. Cashflow is king!
If you've heard me talk about Property Development, you'll know that one of the long-term goals I recommend is a 1 into 6 strategy. Essentially, it means you turn your site into 6 separate dwellings, sell 5 and then keep the 6th one debt free and rent it out. Every time you do that you bump up your cashflow, and financial freedom is another step closer.
This is also a big reason why some investors like to buy property in regional areas, as lower prices make it easier for them to rent the property out for positive cashflow. Multi-res strategies such as rooming houses also fit this category.
Over time, there's been a lot of talk about capital gains vs cashflow for investors, as though it's not possible to get both from one property. It's almost developed into a kind of holy grail! But there are plenty of investors who find properties giving a level of both, particularly if they hold the property long enough.
Still, for most property investors, they initially buy for one or the other.
If you'd like learn strategies that create both growth and income our free 7 Step Development FORMULA course is a great place to start.
Manufactured Profit
Now we're getting into the realm of Property Developers. In this scenario, the goal when buying a property is to take what's there, and do something to add value. It might be renovate, develop, subdivide, get permits... there are lots of different strategies for making money from property.
If you're paying attention, you'll already have noticed a big difference between the first two categories of buyers and this one. Capital gains and cashflow are to a great extent passive strategies, with little time input.
Manufactured profit, though, requires a much more active approach. This is where property developers create value rather than simply waiting for the market to move.
This is one of the biggest differences between property developers and investors. The other one is time. Investors buy with a view to potentially holding a property for the long haul. Developers are more likely to want to be in and out of a property quickly, with time frames changing depending on the development strategy used. This makes them a lot more sensitive to changes in the market (whichever market that is!).
Lifestyle
Although I've used the word "lifestyle", to a great extent I simply mean homebuyers. These are the starry eyed buyers who fall in love with a house and just have to have it. As Property Developers, we love them because they're often the ones who buy our stock.
As a property developer, it's really important you DON'T fall in love with a property when buying a site to develop. Why? Because in this category, buyers make decisions based on their emotions. The butler's pantry they just have to have, the kitchen with all the shiny appliances, the big man cave/shed out the back...
That makes them a great buyer for your product. But it means when the auctioneer is doing their thing and getting everybody fired up and emotional, these are the buyers who will put their hand up for an extra $5,000 over and over again until they get what they want. And often completely blow their budget in the process.
Property Developers don't have that luxury - it's all about the numbers. If the numbers don't work beyond a certain price, your hand should stay in your pocket at that point. It doesn't matter how much you love the house, or the neighbourhood, or your developer juices get fired up by what you can do with the site... if you cross the line to the dark side where you're buying like a lifestyle buyer, you're in big trouble. Leave this category for the homeowners!
Depending on the reason for buying a property, the price someone is willing to pay is likely to change. Which leads to a whole other conversation about determining the value of a property, which will be in another Property Pulse!
What does that have to do with the reason people buy property? Well, as a Property Developer, at some point you're going to end up with properties to sell.
Understanding who the buyers in your area are, and their reasons for wanting to buy a property, can make a big difference to what kind of end product you develop. Knowing your target buyer is one of the most important parts of successful property development. You may even discover your development strategy doesn't suit that area at all and go elsewhere.
Basically, the last thing you want is to finish your development, only to find you've built something that just doesn't fit the needs of buyers in the area. That's a great way to watch your profit start to go down the gurgler.
Which takes us back to the original question - why do people buy property?
Capital Gain
Let's get real here - a large number of Australian property investors buy with the expectation of making a nice chunk of change as the property rises in value over time. This has been the standard scenario for a long time now, and there's no reason to assume it won't continue.
Now, note I said investors, not developers. As an investor, the plan is to hold the property for many years, so any short-term drops or flat spots will eventually be overtaken by price rises.
If you're in a position to do this, it's a very simple strategy, particularly if you don't want to be actively involved in doing "stuff" with property. Sit back and wait however many years it takes for the property to grow enough for you to sell or refinance and turn that gain into cash. Rinse and repeat.
Even better, investors can be a little more energetic and spend time picking areas to buy where their chances of a good capital gain are enhanced. That's a great way to achieve increased equity quickly. This is why suburb selection and market drivers matter so much in real estate investing.
CashflowYep, we're still talking about investors as buyers. This time, though, it's about what income they can get from the property. Cashflow is king!
If you've heard me talk about Property Development, you'll know that one of the long-term goals I recommend is a 1 into 6 strategy. Essentially, it means you turn your site into 6 separate dwellings, sell 5 and then keep the 6th one debt free and rent it out. Every time you do that you bump up your cashflow, and financial freedom is another step closer.
This is also a big reason why some investors like to buy property in regional areas, as lower prices make it easier for them to rent the property out for positive cashflow. Multi-res strategies such as rooming houses also fit this category.
Over time, there's been a lot of talk about capital gains vs cashflow for investors, as though it's not possible to get both from one property. It's almost developed into a kind of holy grail! But there are plenty of investors who find properties giving a level of both, particularly if they hold the property long enough.
Still, for most property investors, they initially buy for one or the other.
If you'd like learn strategies that create both growth and income our free 7 Step Development FORMULA course is a great place to start.
Manufactured Profit
Now we're getting into the realm of Property Developers. In this scenario, the goal when buying a property is to take what's there, and do something to add value. It might be renovate, develop, subdivide, get permits... there are lots of different strategies for making money from property.
If you're paying attention, you'll already have noticed a big difference between the first two categories of buyers and this one. Capital gains and cashflow are to a great extent passive strategies, with little time input.Manufactured profit, though, requires a much more active approach. This is where property developers create value rather than simply waiting for the market to move.
This is one of the biggest differences between property developers and investors. The other one is time. Investors buy with a view to potentially holding a property for the long haul. Developers are more likely to want to be in and out of a property quickly, with time frames changing depending on the development strategy used. This makes them a lot more sensitive to changes in the market (whichever market that is!).
Lifestyle
Although I've used the word "lifestyle", to a great extent I simply mean homebuyers. These are the starry eyed buyers who fall in love with a house and just have to have it. As Property Developers, we love them because they're often the ones who buy our stock.
As a property developer, it's really important you DON'T fall in love with a property when buying a site to develop. Why? Because in this category, buyers make decisions based on their emotions. The butler's pantry they just have to have, the kitchen with all the shiny appliances, the big man cave/shed out the back...
That makes them a great buyer for your product. But it means when the auctioneer is doing their thing and getting everybody fired up and emotional, these are the buyers who will put their hand up for an extra $5,000 over and over again until they get what they want. And often completely blow their budget in the process.
Property Developers don't have that luxury - it's all about the numbers. If the numbers don't work beyond a certain price, your hand should stay in your pocket at that point. It doesn't matter how much you love the house, or the neighbourhood, or your developer juices get fired up by what you can do with the site... if you cross the line to the dark side where you're buying like a lifestyle buyer, you're in big trouble. Leave this category for the homeowners!
Depending on the reason for buying a property, the price someone is willing to pay is likely to change. Which leads to a whole other conversation about determining the value of a property, which will be in another Property Pulse!
