With Michelle and Patrick, they set us an enormous challenge - search for an investment property under $200k! Not to be deterred, we scoured the market and with this budget firmly in mind, we considered student accommodation.
But is student accommodation a good investment?
In short, it depends on what you’re looking for. Yes if you’re looking for income No if you’re looking for capital growth, as it is primarily an income asset with a resale market almost exclusively limited to investors. And there in lies the challenge - investors buy real estate with their calculators… not their hearts! To get significant capital growth, we as investors, rely on the fact that when we put a for sale sign out the front, we want a buyer to be using their heart when they make an offer on our property so that we can maximise our sale price.
Ok, so why does buying with your heart matter so much? The short answer is simple - logic goes out the window when emotion kicks in!
Consider this, according to the Housing Industry Association; the Australian residential property market is made up of around 8.157m dwellings totaling $3.2 trillion dollars. It is 70% owner occupied and 95% in individual names so it is therefore a very emotional asset and the only investment market in the world not dominated by investors!
To be successful, we need to exploit this very concept to our advantage and the best illustration of this is seen at auction. As a professional buyer, I’m armed with a number of strategies to “professionally scare” off people from bidding against me. I need them to think that I have deep pockets and will buy the property no matter what. Essentially we are playing a big game of bluff.
The truth is that I do have a limit and at some point I will need to stop bidding but I know that when people are at auctions they have ice running through their veins, they get nervous given the public display of confidence required to bid strongly (not unlike the nerves someone feels speaking in public), they inadvertently reveal body language signals that tell when they have reached their limit or that they feel uncomfortable, as well as knowing the high stakes associated with being one of the biggest decisions they will ever make in their life. Knowing this, and being experienced at 100’s of auctions, I rely on working these factors against the other bidders and 9 times out of 10 it pays off for my client.
However, every now and then there is a situation where no matter what strategies and techniques I employ, there is someone who comes along and has totally fallen head over heels with the property and will buy it no matter what! They may even pay OVER their limit just to get it… i.e. logic goes out the window when emotion kicks in! Great result for the seller!
So, given that capital growth is very important to me, what I look for when buying an investment property is something that has owner-occupier appeal. It doesn’t matter that you will be putting a tenant in the property… what matters is who is likely to buy it when it comes time for you to sell! Make sure that it is appealing to the emotional buyer – the owner-occupier.