So you’re looking to invest in property since you’ve heard about how lucrative it can be. Property investment can be a great way to grow wealth, but plenty of investors make the common mistake of buying with their heart and not choosing the right type of property. Property that will give them the best capital growth and return on investment.
More often than not, Too many investors fall in love with the look of a property and don’t treat property investment like a business in which they carefully weigh up the pros and cons.
The single most important factor to consider when buying an investment property is return on investment and capital growth and the one asset which will do that is land
Land appreciates in value, buildings do not.
However amazing a house looks and no matter how much you love it, the value of the actual building itself will go down as it ages as your maintenance costs increase. Whereas the value of land, a commodity which is in short supply, keeps going up.
If you’re looking to invest in property, you need to avoid making the biggest mistake on focusing on the building only. Of course, this is not to say that you sit on a vacant block of land and wait for it to grow in value.
Looking at the two components separately over the past 30 – 40 years, land prices have increased in value at nearly twice the rate of the house value.
Therefore, best way to grow your investment is therefore to buy property with the highest possible proportion of land content.
Land is the conduit to building capital growth in residential real estate, while the building is there to generate rental income and service the debt.
Buying just any parcel of land is not going to guarantee you instant capital growth. Remember, treat it like a business decision, it’s essential you do your homework and buy in the right area.
It needs to be somewhere with good population growth, employment opportunities, lifestyle amenities and public transport.
These factors will cause the population growth (and therefore demand for housing) to be sustainable over a long period of time.