{"id":19915,"date":"2018-01-04T16:17:25","date_gmt":"2018-01-04T05:17:25","guid":{"rendered":"https:\/\/www.realestatetalk.com.au\/?p=19915"},"modified":"2018-01-04T16:17:25","modified_gmt":"2018-01-04T05:17:25","slug":"look-past-appearances-to-uncover-the-real-potential","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/look-past-appearances-to-uncover-the-real-potential\/","title":{"rendered":"Look Past Appearances To Uncover The Real Potential"},"content":{"rendered":"

\u2018Don\u2019t judge a book by its cover\u2019 is just as true in astute property investment as it is in life. Humans have an innate tendency to form strong, often lasting, opinions based on an initial visual interpretation of something\u2014the \u2018first impression\u2019. Doing so can mean overlooking a good opportunity or worse \u2013 making a decision which we later regret. <\/strong>
\nLetting our first impressions cloud our judgement is especially fraught in property investment. Over-emphasising the visual at the expense of the practical is a common pitfall that has seen many new (and plenty of experienced) investors lose hundreds of thousands of dollars in returns over time.
\nPsychologists call the phenomenon of making positive assumptions about a person or thing\u2019s character (or value) based on its appealing visual presentation the \u2018halo effect\u2019. A person judges what they see within the frame of reference of their first impression and tend to cluster characteristics together within that context. So, if they like what they see, they tend to have a favourable bias towards it.
\nWhen it comes to property, if a potential investor likes the look of a place based on its aesthetics, they will tend to assess its other attributes, such as future capital growth, positively. In other words, they will persist in seeing it in a good light and tend not to think dispassionately about it. This can be a big mistake.
\nThe \u2018touch and see\u2019 nature of property is very seductive (and is a major reason why so many investors pursue property over less tangible investment alternatives, such as shares).
\nAs professionals who are involved with investors and property all day, we see this all the time. Investors prioritising visual appeal over more important considerations (like whether it is low maintenance, structural integrity, and crucial economic considerations). Our highly skilled buyer\u2019s agents follow a structured process<\/a>.
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\nPointers O<\/u><\/strong>n Making Practical Decisions<\/u><\/strong>
\nThink about it: the difference between 6% and 8% average capital growth per year on a $450,000 property equates to $165,000 over ten years. That 2% is well worth thinking rationally, but how do you do it when a favourable first impression is tugging on your heartstrings?
\nTo win with property, you have to look beyond its beauty and see the real deal. It can\u2019t be a superficial decision. Keep in mind that a property is a static commodity \u2013 it doesn\u2019t grow, it\u2019s not a tree. Economies grow. View property as a financial instrument and (first) evaluate the potential for economic growth of that community<\/a>.<\/p>\n

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  1. Step back and look at the property market from a macro level \u2013 Australia is a big place with 550 city councils spread across eight states and territories;<\/li>\n
  2. Don\u2019t analyse a property for its bricks, mortar and what\u2019s within its walls. An astute share investor would not buy stock because they like a company\u2019s logo or products. And so it is with property: don\u2019t buy a property because you like using flick-mixer taps or hanker after a heritage facade. Think about what happens when the inevitable wear and tear reduces the property\u2019s good looks. Ask yourself how important are caesar stone bench tops or mirrored mosaic tiles?<\/li>\n
  3. Look at the property\u2019s long-term potential within the context of the local economy, population trends, where the governments of the day are leading us, supply and demand, and other important indicators of a good investment decision;<\/li>\n
  4. Realise that, as an investor, your objective is not to buy the nicest looking property; it is to maximise the return on your money. The property\u2019s aesthetics will have some impact on its going price now, but will have negligible effect on how the property performs in the future. Often, the nicest looking properties today have the \u2018nicest\u2019 price tag. But, how will the property look after 10-15 years of wear and tare as tenants come and go? This doesn\u2019t imply that you should look for an ugly duckling, rather to ensure that you aren\u2019t paying an unreasonable premium because of short-lived appearances. In the same way that a nice looking property can be \u2018high maintenance\u2019 a property with a dated interior can still be structurally sound and \u2018low maintenance\u2019. Remember, the time when appearances count most is when we are about to sell.<\/li>\n<\/ol>\n

    Location, location, location\u2026<\/u><\/strong>
    \nThe \u2018noughties\u2019 decade saw property values increase at unprecedented rates world-wide. We were also bombarded with property information from the internet and a tonne of lifestyle and home improvement shows, often screaming the message: location, location, location<\/em>.
    \nUnderstandably, a lot of people ran with that message and assumed a \u2018good\u2019 property buy was one in a \u2018good\u2019 location. But, what actually constitutes a good property investment location? Unfortunately, for many people, they judged a good location to be one in which they could see themselves living and purchased property for its popularity given the schools, shops and cafes nearby, its proximity to water, the attractiveness of its view or the general aesthetic or \u2018look\u2019 of the property.
    \nIf these criteria were the sole drivers behind their investment decision, then the investor undoubtedly overlooked much more crucial considerations. For instance, there are always factors such as these at play:<\/p>\n