Location Location Location Is Outdated: Three New Top Factors To Consider

Location Location Location Is Outdated: Three New Top Factors To Consider

Location location location suggests that area is the be all and end all of property investing. What feedback do you think you would get if you ask 10 different estate agents (serving the same area) about suburbs to invest in?

What I can tell you, in my experience, is that you will get up to 10 different answers. Why, because they want your business.

Investment property is a business, and like any business there are a number of variables that influences performance. Location is one of them, but unfortunately it tends to be the only thing that most people look at when starting out.

What suffers at the end of the day is the return on your business.

Remember, your objective is to generate income freedom in the shortest time possible, and to do that you must acquire assets that maximise return at the lowest possible risk.

If the real estate industry requires a mantra to better facilitate investment decision making, location location location must be replaced with:

Market, Growth, Risk

1. Market:

Your property business is supported by rental income. What rental will your business attract?

What is the rental demand in the area?

Will the area be able to sustain your business?

What type of property do people rent in the area?

Who are they? What are their preferences?

Have property market values shown consistent growth over the long term?

2. Growth:

What return do you expect over the next five years?

Are you able to calculate the return?

Does the return fit in with your income creation plan?

Important tip: If you cannot calculate the return on a property deal, do not buy the property.

3. Risk:

Every business has a cost tag. Will you be able to maintain the costs, especially the bond repayments when interest rates change?

How will market demand change in the short and long term?

Is the market growing or shrinking?

Most important of all, what is your business strategy? Your strategy must highlight the type of market you are after, the expected returns and level of risk your business can support.

For example, your strategy may focus on student accommodation, specifically four bedroom units near universities and colleges in Gauteng, that generates 43% return per annum after costs at a maximum interest rate of 25%.

Location location location is a short sighted strategy. A focused income creation plan makes all the difference between success and failure.

When it comes to property or any passive income business, you must learn how to:

Assess the market

Determine the growth rate

Evaluate the risks

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