The Science Behind Investing In Property

Thursday, October 22, 2015 / Property Investment

investing or gambling
Some people mistakenly think of investing as some sort of gambling.

There is however a principle difference between investing and gambling, and that is the fact that one of them has set odds in a complete game of chance, and the other is a process of research and statistical analysis.

When you place a bet at a casino or other gambling area, you know that it is nothing except blind chance that will dictate as to whether you will walk out with increased funds or no funds at all. Whilst some people will always claim that they have a ‘system’ which guarantees them victory in gambling efforts, you should always remember that these are the types of friends who are often asking to borrow $20.

When for example you spin a roulette wheel, you know that the ball is going to land in one of 38 positions, and that each of these positions is equally as likely as the others. There is no method what so ever of accurately predicting what the outcome will be. Even if you dedicate your entire life to watching and calculating the statistics of a roulette wheel.

How Property Investing Differs to Gambling

Whilst no amount of research can give you an edge on the roulette wheel or other random chance events, this is not true when it comes to predicting the potential growth in a piece of real estate.

There are numerous factors that can influence the potential value of a piece of real estate, and all of these factors can be measured, assessed and then analysed in a method which will allow for an accurate representation of the likelihood of the asset increasing in value.

Factors can include:

  • Available infrastructure
  • Transportation
  • Closeness of entertainment and shopping
  • Vicinity of medical care
  • Distance from the CBD
  • Quality of local schools in an area
  • Population growth and vacancy rates

These are all easy benchmark factors that can be assessed.  In this way a researcher can gain quite a strong indication of an area’s propensity to increase in value.

The trick is understanding what people want when it comes to a place to live.

An investment strategist is able to look at historic data of an area to see how people have already been reacting to the location; this then helps them to understand the desirability of the location as well as helping to set benchmarks for predicting other similar suburbs.

For example, location A

  • rarely sees existing housing become available
  • when the housing is made available it is subsequently sold quickly
  • When the property is sold it sells for the initial asking price or more

This shows that there is a strong demand for the area. The people who are already there are not frequently wanting to leave, which shows that the liveability of the area is rather high. The fact that any properties advertised sells quickly shows that there are no shortage of people who would like to buy in that area which in turn increases the prices they are willing to pay.  This is reflected in the property values of that particular location.

Researching the data, and extrapolating conclusions from the data, means that when you are choosing to invest in a property it is possible to do a full caveat of research that will allow you to rely on a scientific method of accurately predicting what the future value will be, as opposed to relying on simply luck and random chance!

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