Sunday, 16 March 2008

Homework Is A Vital Step Before Buying Your First Property

With median house prices across most English-speaking countries at the highest levels in recent years, it is important for first-time buyers to take a conservative approach to their first property investment and focus on buying a property for under the median price.

Taking this kind of approach helps to ensure that you don't financially over expose yourself with your first property investment purchase. Buying a lower priced property which has the potential for strong capital growth can be an important building block to growing a successful property portfolio. Lower priced properties also tend to have higher rental returns which is a big bonus.

The biggest hurdle new investors face is seperating head from heart in choosing an appropriate property as an investment.

The property market isn't homogeneous. There are distinct segments like residential and commercial property that boast different performance characteristics. Within each segment, no two properties will achieve the same investment results, be it capital gains or income producing. And no two investors are alike; each one has a different personal and financial circumstances. Before working out what and where to buy, you need to assess your own situation.

This begins with determining your goals - do you need capital growth or income replacement?

Generally, time is on your side, first-time investors should aim to build equity through capital growth. This equity provides leverage to expand the investment portfolio with other properties in the future. In this case, residential property is a good option.

Holding a property for at least 7 to 10 years allows a full rotation of the property cycle and better equips investors to weather market performance variations in national and local markets.

Zero in on properties and locations that experience a consistently stronger level of demand from investors and home buyers relative to the level of supply. Generally speaking, they are located 3 to 12 kilometers from the CBD, in quiet streets, close to public transport, shops and entertainment.

The approximate median house price in various countries are (as at Feb 2008):
  • Australia: AU$470,000
  • Canada: CA$301,00
  • New Zealand: NZ$337,500
  • The UK: £179,500
  • The USA: US$238,500
Related article: Important Factors To Consider Before Buying Your First Property