Before answering this question, we have to understand the concept of ‘market value.’
True market value is the price that a property can fetch. When a property is sold, the price obtained becomes the benchmark market value for all properties of a similar size and quality in that area. Presentation and decoration only adds to, or takes away, very small amounts of value, since aesthetic items (such as impressive décor) usually only add to saleability, not price. Let’s say you owned an apartment in a block where all apartments were the same, and you had paid $380,000. If your neighbours subsequently sold their identical apartment for $350,000, the value of your apartment would become $350,000.
In a hot market, properties will frequently sell for over market value, as buyers who fear they may miss out rush in to buy whatever stock is left on the market. When this happens, we often see the buyers who came in at the end paying more than market value, losing money on the property when the market settles back to a more normal situation. In a cold market, the reverse is true – savvy buyers can take advantage of slow sales to make a series of low offers until they get to that seller who has a greater need to sell. That seller potentially agrees to less than the underlying value of the property. Those buyers can then immediately benefit once the market returns to normal.
In a nutshell, the market value of a property relates very much to the demand at the time, in combination with the desirability of the area, which at some point in the past caused the particular area in which a property exists to become more desirable than others, forcing the values up more quickly.
Having said all that, when it comes to buying property as an investment, rather than as a home you wish to live in, there are features that make one property in any area a little more valuable than another (within the pre-set range that market value provides), even where the specifics about that property, such as its size and location, are similar to others. And it isn’t how beautiful it looks!
What do investors look for?
Investors look for properties:
- with a strong history of tenants, and which are easy to care for and less expensive to maintain. High end features such as designer carpets and fixtures, pools and exotic gardens normally turn away investors, as these features can threaten the financial bottom line, being cash flow, when they need repair or replacement.
- properties with the capacity to easily add features, like an additional bedroom or car space, also attract more investors.
- being close to the kinds of amenity that the target tenant would seek, such as transport nodes and shopping precincts, are also features which can impact the value of a property.
- larger blocks attract a premium for sellers, especially where it is clear that the block can be developed into more than the single dwelling, either through subdivision or the addition of a granny flat.
Always be aware that the property with the greatest value will be the one with the greatest demand. When investors are active in a market, demand can increase. By keeping an eye on what a future buyer would want, and by being aware of what makes a good investment (as opposed to a good place to live), you’ll have more success in picking property that holds its value and achieves a good return over the medium to longer term.