In a previous post we saw that this very old property rule (location, location, location) does not apply to rent-to-buy properties to the same extend as to buy-to-live properties (your home).
From an investment perspective, there is also a danger in this slogan. I see it very often. We want to buy investment properties as if we are going to live there. I don’t want to live in ANY of my rental properties. I cannot imagine how it is living in the areas where most are situated. I cannot imagine what it must be like to live so close together. I cannot begin to imagine what it would be like to live with no private space and no privacy.
Fortunately (thanks to property investments, amongst other) I don’t have to live there! A friend and I discussed this matter the other day. New tenants moved into his investment property. Cramped is not the word, but compared to where they lived before, it was like moving into a palace. The new tenant said to him: “Thank you, sir, for the opportunity. It feels good to feel like a human again.”
The lesson is simply this: there are different criteria when I buy a home for my family, or when I buy an investment property to rent out. Never get confused. Never buy an investment property through the wrong glasses.
The other danger with this is that you tend to over-capitalise. You want to upgrade tiles and carpets and build braai areas. I am not suggesting that you rent out pigsties, but I am saying that you do not put in the most expensive wool carpets. Many people don’t even look after their own possessions. They will worry even less about your carpets.
Part of being a professional investor, is the ability to be objective and not become involved emotionally. In P3 we have, what we call, a score card, a ten-point evaluation criterium to ensure we cover the bases, but also to ensure we don’t get too emotional about an opportunity. If you find yourself looking at an investment opportunity as if you were going to live there, emotion is taking over. Beware.