Investing in Value
When it comes to investing in the property market, you need to be investing in value as this is what is going to generate the best returns.
Property investors are most often concerned with the bottom line. You do your feasibility study, work out your forecast return on investment and then decide whether or not the development is worth pursuing. The mistake that some investors make is trying to manipulate the feasibility study to make the end result more attractive. This is usually done by reducing the size and/or specification of the build in order to reduce the build cost. However, this can lead to false economy.
Even though you are not building your dream home, you are building someone’s home and scrimping on the layout or finishes can leave you with a less desirable product when you take it to market. This can result in a longer sale time or a lesser rent yield. Taking into account additional holding costs, loss of potential capital or a reduction in passive income, is your lower build cost actually giving you a better return in the long run?
Yes, we all have a budget to work to and over capitalising is just as much of a risk as under capitalising. What you need to look for is the best value for money. This includes not only the bottom line on the build price but what that build includes and the ease of your building journey.
Make sure your specification includes not only the finishes that most appeal to your target market but also all of the other inclusions, such as siteworks, retaining etc that you don’t want to find out later are actually extra to your contract price! You also want your contract to be turn key, ready to move in. Removing items from your contract to save money by doing them yourself at the end often costs you more; as you will end up paying closer to retail for those items and also need to factor in the cost of your time to source and install them.
Always remember that the cheapest price is not the same as the best value … and invest accordingly!