26 Feb "I want to buy in the very best location…" – Shannon Davis
In today’s show Shannon Davis from Metropole Property Strategists talks about the belief that it is all about “location, location, location”. He says it is a basic fundamental truth about successful investing.
Kevin: There’s a TV show called Location, Location, Location, and you could be excused for thinking that buying a property is all about location. Is that true, or is it just a myth? Let’s try to find out. Shannon Davis joins us from Metropole Property Strategists.
Shannon: Good day, Kevin.
Kevin: You’ve probably heard that, and you’ve probably heard a lot of people come to you and say, “I want to buy in the very best location and get high capital growth and a great return.” Is it possible?
Shannon: It is, and if you’re going to do just one thing, then that would probably be the best advice you could get: just buy the best piece of dirt that you can afford with the best location.
Kevin: So that’s it. You agree with that myth, do you, that it’s all about location?
Shannon: Yes. I would principally put it before all the others. It probably has very little to do with the actual property – the kitchens and the bathrooms and the floorboards and the street appeal. It’s actually more to do with the dirt and the demographics of the area. Location is the one thing we can’t change about the property. We can always cosmetically improve the façade and the condition of the property, but we can never change its location.
Kevin: Just to add to that, quite often a comment I’ve heard is “Oh, if only this property were in Ascot, it would be worth twice as much.” That probably proves that theory that it’s all about location. If that’s the case, Shannon, why then do we get so caught up with all the niceties about the property?
Shannon: I think it’s an emotional buy for a lot of people. When they get into the property, they can’t see past the work or imagine themselves in the property or using it as one of their rentals. It actually does reward those people who can actually have a little bit of vision and see past maybe the ugliness of a property that’s maybe unrenovated but in a great condition. Often, people will be attracted to the bells and whistles of a brand new property that’s further and further out, but the land underneath that property isn’t as valuable.
Kevin: Probably the one major piece of learning that comes out of this myth is that you should put aside the emotion of buying the property. I suppose if you’re buying for an investment, you should therefore treat it like a business.
Shannon: Yes, definitely. Look at its history, the track record of the area, the ups and downs, because all property markets have ups and downs. If it’s for investment, the first rule of investment is not to lose your capital, so you want a nice, safe, and steady return. You don’t want the big pitfalls if there’s a correction.
Often, one way to help protect your property and its value is to be in an area where there are lots of owner-occupiers. For these guys, it’s their home, not their investment, so if there was a downturn or a recession or GFC-type event, they’re going to hold on to their properties because it’s their home.
Kevin: In dispelling a lot of these myths that we’re doing right now in the shows, we’re hearing from a number of people who are saying, “Always buy blue chip. Always buy inner city.” Is it as simple as that in picking the location? What is it that you look for, Shannon?
Shannon: I think not as simple as that. I think there are some areas and streets and parts of suburbs that don’t perform as well. Often it’s visible – it could be too close to a main road, too close to a train station – but sometimes it’s not visible. It might be that there’s pockets of industry that make awkward noises at different times, and you only know that from living there, or it’s had flooded waters in the 2011 or 1974 floods, or there’s a high proportion of social housing that could be a bit of a drag on your capital growth.
It takes a lot of research, and not just saying, “Well, that’s in Ascot. That’s going to be a good property.” Some streets perform and some sections perform better. It’s really local knowledge or thorough research that gives you that edge.
Kevin: So you can’t beat getting on the ground, having a look around and experiencing the property at different times of the day, different environments to see what really is happening in that particular area, in that street.
Shannon: Yes, that’s right. We’re all probably experts on our own little patch of where we live and where we jog and where we play, but to do it on a greater scale, to do it across multiple cities or towns or suburbs, it really does take a huge amount of research or a lot of time in that area.
Kevin: Always great talking to you, Shannon Davis from Metropole Property Strategists.
Shannon, thanks for your time.
Shannon: No worries, Kevin. Any time.