Buying a Residential Property: Should Current Purchases Influence Your Investment Decision
“If you aren’t thinking about owning a(n investment) for ten years, don’t even think about owning it for ten minutes.” – Warren Buffett
Are you considering purchasing a residential property as an investment? If so, several decisions need to be made based on relevant research that needs to be conducted before making the necessary purchase decision.
At this juncture, it is vital to highlight the seriousness with which the purchase of an investment like a residential property must be approached: this quotation mentioned above by Warren Buffet emphases this point. And, to realise a reasonable return on the investment, it is vital to hold the investment for at least ten years. In other words, buying a home is a long-term investment.
Questions to ask when buying a residential property
To help you target and focus your research on the right areas, let’s look at some of the more critical questions that need to be asked and answered as part of the purchase process:
Is it important to look at where other investors are buying properties?
One of the most relevant questions that must be asked and answered is whether it is important to check where investors are buying right now. And the simple answer to this question is: Yes, it is critical to determine which areas have high volumes of residential sales.
However, it is even more important to determine why there are such a large number of sales. Is it because the residential area is increasing in popularity due elements like urban regeneration, the proximity to schools and shops, or the proximity to a new industrial area.
On the other hand, there might have been an influx of crime like housebreaking and drug dealing; thereby, causing substantial reputational damage. Thus, people will want to sell quickly to move their families to a safer neighbourhood.
Thus, it is vital to ask “why” before deciding on a neighbourhood to purchase a property.
Should you look at low-volume sales neighbourhoods?
Furthermore, it is equally important to research areas that are not currently popular. So, in other words, you need to look at neighbourhoods that have low-volume sales as well as high-volume sales.
Again, the expected question is the “why” query.
Simply stated, typically, a high-volume of sales tends to drive house prices up. Unless the neighbourhood is emptying due to negative reasons, as mentioned above. It’s a case of supply and demand: low demand and high supply equate to reduced prices and vice versa.
Thus, based on this logic, looking to buy a “fix-me-upper” in a neighbourhood that is showing signs of urban regeneration will allow you to buy a house in a good area at a bargain price. A caveat here is that it’s vital to check whether the home is structurally sound before offering to buy it. Otherwise, you run the risk of ending up with potentially bankrupting renovation bills if the house’s external structure and support beams have to be redone.
The bottom line when purchasing anything from a residential property to an electronic gadget (with everything in between) is value for money. A sound investment that is designed to realise returns over a period of time must be approached from the perspective of whether the purchase is value for money or not.
Therefore, when translated into investing in the residential housing market, it is vital to make sure that you invest in a property that will increase in value as time goes by. It’s essentially the principle of “buy low, sell high.”
Also, it must be highlighted that not every investment transaction looks healthy and solid at the outset. We are human. We make mistakes.
Thus, you can research the market as much as possible, and still make a less-financially sound decision. It is as it is.
However, it is possible to turn the negative decision into a positive decision by cutting your losses, selling at an opportune moment, and reinvesting in a different neighbourhood. Or, the other option is to keep the status quo, observe how the value of adjoining houses increases or decreases, and make a medium- to long-term decision to sell. There are never any 100% correct decisions. All decisions are dependent on a number of factors as discussed above.