What Really Drives Property Values Up and Down?
Sophisticated Real Estate investors dig much deeper behind the curtain to discover the hidden gems in any market conditions. Just like the stock market, not all towns see real estate values increase in a booming market and many actually under-perform or even drop. Your job as an investor is to pick areas providing the best returns for the lowest risk by cutting through the negative news and getting to the real numbers.
There is a simple and easy strategy for doing this and it is called:
Focus on the Fundamentals Not Emotions.
Successful real estate investing is all about identifying a town or neighbourhood that has a future, not a past. Sadly, many investors like to invest based on past performance and find themselves constantly chasing the market, responding emotionally to headlines. Although they call themselves investors they are, in reality, speculators because they don't understand the economics behind their property increases and decreases. There is a huge difference between investing and speculating, the main difference being unbiased knowledge and the second difference is having a long term outlook for their target area.
To dramatically reduce your risk, ask the following key questions, and don't fall in love with a property or a region. As soon as you fall in love with a region, you can find many ways to 'justify' your investment. Sophisticated investors don't care where the property is located - they just want to ensure that it is economically strong and that it has long term viability.
There are 12 major influences on the long-term values of property. Each of these affects real estate prices in both directions, and each one is an important component in finding which way real estate values will be going. Dig deep, the more yes's you get, the better the market will perform.
- Is the area's average income increasing faster than provincial/state average?
- Is the area's population growing faster than the provincial/state average?
- Is the area creating jobs faster than the provincial/state average?
- Does the area have more than one major employer?
- Is real estate booming in the surrounding region more than where you're looking?
- Will property values benefit from a major new development nearby?
- Has the local and provincial/state political leadership created a 'growth atmosphere?'
- Is the region's Economic Development Office helpful and pro-active?
- Is the neighbourhood located in an area of renewal or gentrification? Or is it in a "war zone?"
- Is there a major transportation improvement occurring nearby?
- Is the area attractive to 'Baby Boomers?'
- Is a short term perceived problem (negative media stories, short term layoffs) occurring that will disappear?
Don't get caught up in other people's opinions of the market. You can ask 10 different experts on what the market is going to do over the next 10 years and you get 15 different opinions. The only truth that matters is based in the numbers. Do your own homework, don't skip any steps in your investment system and most importantly keep your eye on what it is you want real estate to create for you over the next decade so you and your family can live the life you know you deserve.
Don R. Campbell
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