This seems to be a pressing question for property investors, yet the answer might surprise you. It is not so much how many investment properties is enough, but more what types of properties provide the best value. Quality always trumps quantity, but how do you know how to find high-quality properties? It is all about building equity through your assets. Here we explain why it’s not about how many investment properties you need, but instead how to find high-performing properties with the best equity potential.
What is Equity?
One of the reasons you can make a lot of money with an intelligent property investment strategy is because you can put very little down and already have equity. So what is equity? Simply put equity is the amount of money you own in the property outright. This begins with how much you put down on the property, as well as how much of your mortgage you’ve paid down. Over time as the value of the property increases so does your equity.
Over time, almost every property builds equity. The challenge with property investment is finding the properties that will outperform the averages so that equity builds quickly. When you find a property that will grow in demand, you will see the value increase quicker, so you see more equity. The formula to understanding your equity is your property’s current value minus how much is owing on your mortgage. The current value is based on the average price your type of property is selling for in your area.
The Danger of Dud Properties
Unfortunately, a big mistake new property investors make is thinking the longer they hold on to a property, the more equity they automatically see. But this is not always the case. It is dependent upon supply and demand. If you buy a property in an area with high demand, but supply that keeps up with demand, then your property will not see as strong an “organic” growth as a property with high demand with supply limitations.
When buying property to build your assets, your goal is to not just look for several properties available at the lowest price, but instead for properties in areas where demand will grow, but supply can’t keep pace.
Spotting Quality Property Investments
Quality property investments require careful research and are data-driven. However, in general, ideal investments begin with ideal locations. This is often an area with less expansion of land where suburbs can’t spread and grow. The more confined an area is in land availability, the higher those limited square meters become in value. Combine this with a wealthy economy in the area, and you have the three things you need to avoid a dud property:
- Increasing demand
- Limited supply
- Favourable Demographics
If you fail to meet these three criteria in your property search, you won’t see as much growth in your assets.
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