Mistakes property portfolio investors commonly make by overlooking the fact that owner occupiers drive the prices of real estate in the area.

Why don’t all people succeed in real estate? One reason is because they only crunch the numbers but there is more to a lucrative property portfolio than just numbers. That’s not to say the numbers aren’t important – they are – but they are not the be all and end all. The best locations are owner-occupier driven.

 

 

Investor Locations and Owner-Occupiers

Today’s one minute mentoring is about the biggest mistake that most investors make – and why they can’t build the kind of portfolio they were originally hoping for. The first one is around this idea that you need to be investing in what a lot of real estate and investing companies refer to as investor locations. Investor locations centre solely around the numbers and you don’t have to worry about whether an owner-occupier really wants to buy it.

The numbers are critical, of course but what I’m going to tell you about today is really simple. That is about owner-occupiers. They are the ones that really drive real estate prices(*1,2). So, when you’re investing, yes it is about the numbers but you want more owner-occupiers than investors driving into that suburb.

Think about this statistic.

• 30% of all demand in real estate is from investors.
• 70% of all demand in real estate is driven by owner-occupiers.

Other factors, such as the health of the economy, infrastructure spending, and supply and demand all play a part in driving real estate growth. However, the one area investors tend to forget about is the influence of homeowners.

The 30% rule – A mathematical truth you need to learn

This is one of the many truths you need to learn. It’s so simple it smacks you right in the face if you hold one of these properties. These are properties that are ‘investment grade’ properties. ‘Investment grade’ is a negative term in this article. They are properties that an owner-occupier would never want to live in if they had the choice. They are the most commonly sold properties in the investment real estate industry. They are built specifically for the renter (and, therefore, the investor). Their dimensions, quality, target market and locations are all geared to be sold to the investor.

During a real estate cycle, the percentage of the total pool of new buyers that are investors fluctuates somewhere between 5% and 55%. The average is around 30% because the high point is relatively brief. Owner-occupiers make up the rest. It is mathematically impossible to consistently outperform the broader market if you own one of these ‘investment grade’ properties, as new buyers that are owner-occupiers will not be part of the demand pool.

The Psychology of Buying Behaviour

In addition to homeowners holding the share of the market (70%), their purchases also tend to be more emotionally motivated. While investors must look at the bottom line to ensure a property purchase is profitable, homeowners attribute extra value to a home’s livability, location, proximity to schools and sentimental value.

For advice on where to invest and which cities, suburbs and regions have the right mix of homeowners and investors, contact Tim Murphy. Tim is an experienced real estate advisor with decades of experience and ample industry knowledge.

Call: 1300 765 811.  Email: info@mentor1property.com.au

 

References

*1. Mentor1 Property. Why People Don't Succeed In Real Estate PT 1 - 1 Min Property Mentoring. Sydney, NSW. YouTube video. 2023.
*2. The Property Tribune. Investors Don’t Drive Up Prices… They Provide Housing. 2021.
*3. Forbes. The Emotional And Rational Benefits Of Purchasing A Property. 2021