Investing in property can be a great way to build wealth, but not all properties are a good investment. To make sure you’re making smart choices, it’s important to understand what makes a property high-quality. These are called investment grade properties, and they have a historic growth rate of over 7% per year for the past 30 to 40 years. In this article, we’ll talk about the main characteristics of investment-grade properties and give you some tips to avoid buying the wrong property.
The Three Characteristics of Investment Grade Properties:
- Land Value Dominance: More than 50% of the property’s overall value should be represented in land. Land appreciation drives capital growth over time, making it a crucial factor to consider when evaluating investment-grade properties. By maximizing the land value component, investors can enhance their potential for long-term capital growth.
- Scarcity and Desirability: Investment-grade properties exhibit scarcity in terms of architectural style, property type, and location. They are often located in areas where land supply is scarce or non-existent, contributing to their desirability. Properties with unique architectural features or limited availability due to zoning regulations or historical preservation also contribute to their scarcity, making them attractive to discerning buyers.
- Historic Growth Rate: Investment-grade properties have demonstrated a historic growth rate above 7% p.a. over the past 30 years. This consistent growth trajectory indicates their potential for long-term appreciation and validates their status as high-quality assets. Evaluating a property’s historic performance provides valuable insights into its potential future growth.
Asset-Specific Rules for Evaluation:
In addition to the three key characteristics, there are several asset-specific rules that should be considered when assessing investment-grade properties. These rules include:
- Practical Design: Look for properties with logical floor plans that make sense for living and functionality.
- Well-Maintained Properties: Avoid properties that require major repairs or have a lot of maintenance issues.
- Location Matters: Stay away from properties located on busy roads or in noisy areas. Also, consider factors like proximity to power lines or other potential drawbacks.
The Art and Science of Property Investment:
While data and analysis play a crucial role in property investment, they do not provide the full picture. Property investment is part art and part science. Relying solely on data can be risky, as not all data is reliable or meaningful. It is important to combine data-driven analysis with property know-how, including understanding the market, typical buyer preferences, and expert knowledge of specific geographical locations. Sometimes, certain streets or buildings have hidden issues that only experienced professionals would know about. Experience and subjective assessments are key factors in making informed investment decisions.
Investment Grade Properties and Perpetual Growth:
Investment grade properties have the potential to double in value every 7 to 12 years. While property values can’t keep doubling forever, there are many investment-grade properties that will continue to experience substantial growth over the next few decades. The idea of property leveling out in the long run is valid, but for this article, we’re focusing on properties with proven long-term growth potential.
Learn from Others’ Experiences:
The quality of your investments plays a pivotal role in your financial success. To ensure the highest quality assets, seeking professional advice or a second opinion is crucial. Experienced professionals bring both knowledge and experience to the table. By learning from others’ experiences, you can make informed decisions and avoid costly mistakes. Successful investors prioritize risk management and seek healthy returns while minimizing risks. Buyers agents brings valuable knowledge, experience, and market insights to ensure asset selection is never compromised. While there are well-meaning buyers agents in Perth, it is important to seek professionals with a track record of success and extensive experience in the property market you’re looking to purchase in.
Investing in investment grade properties offers the potential for long-term wealth accumulation. By understanding the three key characteristics, applying asset-specific rules, and considering past performance, investors can avoid purchasing the wrong property. Seeking professional advice and focusing on quality assets are essential steps towards building a successful property investment portfolio. Remember, investing in quality assets when you can afford to do so is the key to financial freedom.
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