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House and Land vs OTP

Did you layby a property this year?

How many property investors put a property on layby this year? If you are confused let me explain.

“The definition of a layby is a system of paying a deposit to secure an article for later purchase. In effect you make a purchase and only take delivery later.”

When you buy a house and land you pay a deposit and pay it off over time – put some money down, make regular payments and take delivery much later. Sounds like a layby to me. Ok, I agree it is stretching it just a bit but hey, it is the festive season after all.

But one part is different. With property, you buy today and pay it off in the future when it is worth much more.

I know, I know, that’s a very simplistic statement but fundamentally it is true. A property bought 20 years ago is worth more now than it was then. I understand there are ups and downs along the way and cash flow changes can occur to impact holding though managing these risks for the long term can mitigate the issues. I will clarify that statement with a disclaimer. It’s important to have a clear strategy and to purchase property that is located in areas that match our Value Criteria.

So it follows then that if you buy something today it should be worth more in the future.

What should I buy?

Notice I didn’t say where should I buy? That’s because I’ve spoken a lot about location in the past, especially on how we choose the areas we believe will provide good results for our clients. I think now we should talk about what goes on the land. What type of building are you going to offer your prospective tenants?

For any investor there are two parts to the equation.

  1. Location for growth
  2. Rent for cash flow

IDPA can help with the first one but for the second you need a tenant.

To attract a tenant you need a house that will satisfy their needs. The final product is what will seal the deal. Will the person walking through the house want to live there? Does it have what the Tenant needs or what they are looking for? Are there enough features to encourage someone to apply to rent?

Investors give a lot of attention to where their investment should be located but how much thought is put in to the final piece of the product.

Naturally, the building will have a lot to do with the experience your tenants have when they rent from you. What do you want to provide and how serious are you about providing quality. Do you know what a prospective tenant wants?

Let’s talk about what type of property you should consider as an investment in these changing times.

Why is the house important?

Location is just one part of the total property investment equation. Location gives you an area which has an opportunity for growth. Even though we talk about areas for investment the crucial decider for a tenant is the house. It’s the house that will be the thing that draws a tenant in. What will it take for someone to choose to rent your house over another.? What will happen when interest rates climb back towards long term rates? Will your property command more in value and rent because of its higher specification? It makes sense to take that into consideration doesn’t it?.

A prospective tenant will most likely be influenced by the features and presentation of the house during the Open for Inspection. How a house feels when they first walk in the door is very important to most people. They will look at the way the sunshine flows through the large double glazed windows flooding the rooms inside with a welcoming light. They will see the colour coordinated carpet and tiles, as well as noting the modern appliances in the kitchen.

On a hot day they’ll appreciate the drop in temperature when they walk in, courtesy of the thick insulation within the roof and walls, while on a cold day there is a comfortable barrier to icy winds. Without doubt our prospective tenants will take in the abundance of easy to clean tiled areas thankful for the time saving it brings. As they wander through the house they might appreciate the logical and well-organized layout while the generous bedrooms and family area tastefully set off by high ceilings and modern energy efficient lighting add to the feeling of spaciousness. Perhaps they might even be tempted to open the glass sliding doors and walk out into the fully landscaped backyard, admiring the simple but effective layout of native plants and synthetic grass.

Our prospective renters might not see the wall mounted alarm panel or the NBN connecting hub located in the garage or even the continuous hot water service positioned discretely around the corner of the house.

All of these features are above the standards of other investment properties and they do line up to a prospective tenant’s wish list.

This is where 8 Star Homes, our property construction arm, comes into its own.

8 Star Homes deliberately use a higher specification than normal. Higher standards mean better quality properties that should command better resale prices if you decide to sell.

They also oversee the entire product cycle from sale to property management and each build is backed up by a dedicated quality control officer during the construction phase. 8 Star Homes organises all suppliers and products in the builds, selecting only those items that meet the requirements. The property is inspected regularly along the journey to manage the quality of the build and customers are provided with regular updates so you have a record of progress.

8 Star Homes also has a dedicated construction team who liaise with the builders to make sure payments are made promptly. They resolve issues with any lenders payments if they arise and gather any documentation that may be needed.

It just goes to show that 8Star Homes is probably our best kept secret.

For an investor one of the important factors is to give the market what it wants. Sometimes we can take for granted that a house is just a house and other than layout or floorplan there isn’t much difference between any of them. It’s about time we dispel that myth. Not all investment houses are the same.

I started off this article somewhat flippantly by asking whether you had a property on layby. Obviously the requirements for investing in property are far more complex than a Retail store layby scheme but perhaps there is enough similarity to make you curious.

To find out more come and attend a House and Land Workshop where we look at all of these questions. For a more personal experience click here to request an appointment with one of our friendly Property Advisors.

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Investors Direct Financial Group (IDFG) was established in 2001.
Our mission is to help our clients achieve and maintain their financial freedom.

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