The objective of this step is to equip you to be able to recognise the importance of a good investment location and how to select areas with good investment potential.
What exactly does location – location – location mean?
Robert Kiyosaki says that the location of your property is more important than the property itself. I am inclined to believe him.
So how do you select the correct investment location?
A brief look at nodal property theory is necessary to help understand how a city grows an where to locate your investment. When towns develop, they tend to originate around a central feature, like a harbour, a water source, a railway junction, a mine, a grain silo.
The town develops a commercial and retail centre known as a central business district (CBD) with surrounding industrial area and residential areas.
As the town grows, the houses become further and further from the CBD and adjoining industrial areas, resulting in traffic congestion along the arterial routes into and out of the CBD.
Two things happen simultaneously, firstly the town centre runs out of land for new development of offices and retail space and the demand by residents who now live too far from the CBD both contribute to a new retail/commercial node forming along the arterial routes.
This growth dynamic occurs over and over as the town sprawls outwards along the arterial transport routes, be they rail or road.
Simplistically, it therefore stands to reason that it is residential property between these nodes which offer the residents the option of working or shopping in either node that has a higher intrinsic value.
Micro location factors
Once you identify this pattern then look at other factors such as pollution, industrial areas, and the existence of slums to establish the most attractive residential areas.
In a city like Johannesburg, the sprawling radial web of business nodes provides numerous opportunities for the investor as residential suburbs develop between the outlying nodes.
If you select new well located suburbs like Northwold/Fourways in the North or Modderfontien /Doweglen in the North East or Meyersdal in the South you are likely to find a combination of high potential capital growth and relatively high rental income.
Once you have targeted a suburb, the next step is to look at easy access to lifestyle enhancing factors like proximity to schools, public transport, shopping centres, entertainment facilities, churches.
If you select well, the astute investor can expect his initial rental to cover most, if not all, of his bond finance costs.
As the suburb matures, trees grow, schools develop reputations and the surrounding business nodes move upmarket, you can expect good sustained capital growth and rental income growth for many years to come.
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