lot of nonsense spoken and written about property investing. Like the famous realtor quip that the three most important things about a property are position, position and position. That tells us nothing about how to choose the right position.
Other people tell us that it’s the land that goes up. If land is the valuable commodity then maybe we should go where there’s thousands of square miles of vacant land and buy ourselves a piece right in the middle. What a load of garbage.
If you want to understand what really drives property prices then there are two basic concepts that you need to understand and accept.
The first concept is that there is no correct value for a particular property, there is only agreed value.
Money is not a natural resource. Money is an invention of people. It is a mental concept that we all agree to accept as real. Therefore there is no correct monetary value for anything. There is only agreed value.
A sale is made when the seller agrees to accept the amount of money that the buyer is offering. When a lot of different sellers and a lot of different buyers agree on similar prices for housing in a particular area then we have a guide line for what property will sell for in that area, but is it not a correct value, it is simply an agreed value that may well change in the future.
The second concept is that it is not the land that goes up in value nor is it the position that goes up in value, what sets the value of a residential property is the imagined lifestyle that could be enjoyed living in that property.
If the imagined lifestyle is one of poverty and drudgery then the property will sell at a much lower price than if the imagined lifestyle is one of comfort, joy and affluence. You only have to look at any marketing campaign from the expert property developers and you will see that they are selling lifestyle.
Now if you put those two concepts together you can immediately see a number of ways to profit in the residential property market. Remember that the two important concepts for residential property are that price is a mental concept and that value is allocated according to the imagined lifestyle.
One way to capitalize on this knowledge is to look for areas where the imagined lifestyle is undergoing a change for the better.
Every major city has areas that are highly desirable now but in the past were in the undesirable category. One example would be an inner city slum that is mentally reassessed as an ideal location for the up and coming executive.
The first few brave explorers buy cheaply and renovate. As a few more follow suit it becomes easier for others to imagine the benefits of this new lifestyle. Over time the suburb is transformed into yuppie heaven and the prices have gone through the roof.
If you understand our two concepts then you will be able to see the trend early enough to reap a large profit.
An even better way to capitalize is to create the new imagination directly. This is where the developer buys a large area of cheap land and then landscapes it to include a lake and beautiful walking path and so on. They then mount a marketing campaign around this new paradise and sell opportunities at enormous profits.
So think about those two important concepts for residential property; that price is a mental concept and that value is allocated according to the imagined lifestyle. Then ask yourself how you could capitalize on them to create an investment profit for you to enjoy.