Cheap in Cheap out

By Shannon Davis

Sometimes people are attracted to cheap property as it has less debt burden, you can buy more properties and there can be a higher yield sometimes even becoming positively geared.???

So, for example the house on a main road, might be sold at a discount of 20% to the other properties in the area, on quieter streets.??If that is your strategy – then so be it.?But as time goes on that property will appreciate as well.?But the discount will remain.?

See market depth will be smaller and that will effect the rate of compound growth.?If 7 out of 10 people will not consider a main road position, this effects the eyeballs on the property, the inspections on a property and the offers.?People feel less confident in spending big on renovations and hence the property grows at a slower rate.?If the suburb has enjoyed 7% growth in the previous three years, then the subject property may only grow by 4%.?

A few streets back, the property is considered safer and quieter and attracts more homeowners.?These people renovate improve and extend their properties more.?They are more bullish with the chances of capital growth and therefore invest more without fear of over capitalizing.??The initial discount is soon eaten up with the superior capital growth.?See the example below:

Property A purchased for 450k appreciates at 4% over 10 years = $661 110

Property B purchased for 550 k appreciates at 7% over 10 years = $1 081 933

Sometimes a smaller more quality property portfolio will pay dividends compared to a quantity approach.??