Covid-19 Bounce Back loans for property businesses16:06 PM, 5th May 2020
About 3 weeks ago 46
Property buying motives intrigue me based on the fact that we all think very differently so I thought I share a bit of deep thinking with you.
The four primary motives for purchasing property, so far as I can think of, are Comfort, Cashflow, Kudos and Capital Appreciation. Every property purchaser will have at least one of these primary motives and possibly secondary motives as I will go on to explain in this article.
Somewhere you can call home, put down roots and enjoy increased privacy are probably the biggest reasons to buy a property as opposed to renting one. Second homes are often purchased for the same reasons.
Some investors purchase additional properties to let out in order to produce cashflow. The highest returns tend to be found on low value properties or properties which can be shared by letting to several individuals, e.g. student homes.
Many people aspire to live in the poshest areas or in homes which are far more grand and much larger than they need. People invest into buying more properties for kudos too. It’s not that long ago that the talk of middle class dinner parties was “how many properties do you own?” This is still a question I’m often asked which makes me think that the people asking believe that the more properties owned the more kudos you have. My usual response is “quite a few but give me one new hotel on Las Vegas strip in return for my entire portfolio any day”. This gets people thinking! It can also broaden the discussion somewhat. I love to talk about property buying motives.
The properties which traditionally achieve the best capital appreciation tend to be higher value units in the busiest cities. They rarely produce high rental yields (typically sub 5%) but they are the investments of choice for many, particularly wealthy overseas investors.
I always find it interesting to listen to debates between people who share different primary motives for property purchase. It’s similar to listening to people arguing that their version of religion is the right one and then somebody else comes along who is atheist – they rarely manage to convince each other.
I think you will agree that it’s unlikely that many peoples motives for purchasing property will be entirely focussed onto just one of the above headings. A good question to ask yourself is what were your motives? Perhaps even try to add percentages to the four motives above.
I mentioned secondary property buying motives at the top of this article. These might include helping children onto the property ladder, investing for a pension, providing accommodation for your children whilst they are university and so on. Whatever you secondary motives are, I think you will see that they always fall into the four primary property buying motives I have described above.
Will your motives be the same for every property buying decision you ever make though? I very much doubt they will. For example, I’d say that the motives for purchasing my current principal private residence were:-
Comfort – 30%
Kudos – 50% (7 acres and 6 bedrooms for 2 people!)
Cashflow – definitely NIL
Capital appreciation – 20%.
If you had asked me when I purchased my first home what my motives were my answer would have been very different.
My property buying motives have differed massively for each of my property investments. Question is, did I understand my motives before I decided upon each property purchase or did I justify each purchase decision after the event?
Deep thinking hey?
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