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Ben Kingsley

20/06/2016
Blog post by Ben Kingsley

Why is property investing so hard?

Hi Ben Kingsley here, today on our How to Session, I’m going to talk about why is property investing so hard. Now I’m here on the whiteboard but today we are using some cards. We are going to basically look at the whole complexity surrounding property. You’ve heard us talk before if you’ve watched some of our other videos about owner occupier appeal. It’s the catalyst for growth. It’s the reason why property prices continue to grow. We’ve always said that owner occupiers set the price. They are the price makers and investors are price takers.

So in this case here, I’ve only got three simple illustrations. We all know that there are different configurations and style of accommodations. Here we’ve got a 2 bedroom flat*, a 3 bedroom townhouse and a 4 bedroom house. Once we’ve unpack the layers and that’s what I wanted to do in this How to Session. We are going to unpack these layers around why is it so complex and why it is an absolute art form to get the best result possible when you’re picking an investment grade property.

Let’s start from the property configuration. Now when we see it in here, we are accessing all the things around that particular asset. We are accessing if it has car parks, what’s the floor plan like, how many living areas does it have, does it have a laundry, is it convenient and do I have to go to a joint shared laundry? And bathrooms, how many are there? Do I have some play space or some land space for the kids to run around on. In addition, if I have some surplus cars, is there street parking? Am I in a densely populated area? These are the considerations that are going on closer in on the actual physical asset and then we are expanding out more to the audiences. Now if you can see here I’ve got some of the audiences around the outside of the configurations, so from shared accommodation, flatmates, single individual to single parents, double parents and one child to multiple children. There are all the considerations and you’ve got to understand that as part of that is, a single parent with one child will work very nicely in a 2 bedroom apartment but in terms of a single parent with 3 kids, is that really going to work medium to longer term? Maybe not.

Now, you need to understand these types of considerations for two reasons. One is the demand on the actual property. I’m talking around the buying interest that the property is going to attract because that is what drives value but secondly, you are also going to look at this type of configurations in regards to tenant potential. So who’s going to rent this property if we make it available for rent as well? Now, inside here we can also see these black pillars here. Affordability is going to be part of that conversation. Obviously, the closer you go in from a radius point of view to the central business district, the more expensive that accommodation gets. The more scarce this asset is, the more expensive it gets and that is why we talk about scarcity.

Remember, everything that got to do with value is ultimately determined by demand and supply.

You would noticed that I don’t have any high rise or medium density accommodation as part of this story because there is limited scarcity value associated with that accommodations. Then coming back to this radius, you would be looking at the time poor element. So you got to understand how the household fits in to this conversation and how quickly they will want to be able to get around. The location is going to play an important part especially in terms of how I need to get to work? The other considerations that you are also making is this lifestyle element is medical facility element if needed be. Do I have good schools in the area, secondary school and primary school? And in terms of parks and lifestyle drivers, am I close to a cafe scene, are there nice restaurants within walking distance or do I have to get into my car to go and enjoy those kind of choices that is available to me? You can see here that I’ve also got the public transport cards as well and that is part of that conversation.

So you can understand why with so many moving parts, it’s not a precise science. It’s an art form in terms of trying to get inside the psychology of the buyer, try to understand what they are looking for and making sure all of those parts come together. That is what makes it so challenging. It is also what makes it so exciting and ultimately when you make that right asset selection, it also makes it so rewarding. This how to session is about why it is difficult to pick quality assets and I hope this make you understand all of those moving parts. Thanks for watching.

* A flat in this video refers to low density and older style apartment.

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