More topical advice you are likely to receive is to buy BMV, or below market value. We are often told that the profit is made on the purchase and, if you can buy BMV, you’ll be boosting your equity and net worth from day one.
So this will be number two on my list although again, as with all these ideals, I recommend not being too rigid. For example, there may be times when the vendor won’t concede on price but you still know that the property is worth buying. Perhaps because it meets other criteria, such as you’re anticipating significant capital growth, again not necessarily because of the market movements, but because of local factors of which you are aware.
And that brings me nicely onto point number three on my list of what would make a great property deal, and that is buying in an area where there are significant prospects of capital growth.
Now there are two ways of looking at this. The first is that under normal market conditions some locations will always be more popular than others, and in those locations we can assume that prices will rise faster than in the locations which are less popular. This is common sense. This is why in the past investors have tended to buy property in locations where property is cheap, for yield and not for capital growth.
However, the icing on the cake is to buy...
in a location where you can not only expect significant capital growth due to natural market forces, but where you know, or anticipate, the capital growth will be further enhanced by non-market factors which are peculiar to that location.
I’ve already used the illustrations of a major employer moving into an area and a major regeneration scheme. Equally it could be due to improvements in transport links or other infrastructure, or the development of a major shopping centre and so on.
The experts are right to tell us to concentrate on buying for cash flow first and foremost, but surely the ideal is to buy for cash flow along with the prospects of significant capital growth over and above average, market-driven, capital growth?
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property InvestorLandlordZONE® Forums