Mistaking price for value

  • Run your own numbers, don’t accept other people’s — especially if they have a vested interest. This applies to assumptions and calculations. I can’t stress enough the importance of making sure you have access to quality data. There’s so many ways to do this. Our process involves using data tools, including REalyse, to quickly aggregate specific and relevant data that can be analysed in house, as well as ‘triangulating’ this data with other qualitative and quantitative data and sources, including local expert opinions. Seek independent sources to verify and provide their input. Ideally, you want 3+ opinions to match up.
  • If you’re considering investing directly, for yourself, it’s worth taking the time to understand what is happening in the property market generally, as well as specifically in the location you are interested in, and what values are in this context. This is about protecting the downside, as well as optimising returns. What you can buy and sell for in one market is not the same in another area, or time; and the price you achieve may not be the same as value.
  • Get to know the local market, not your local market, and what drives it. Compare apples with apples. Being ‘cheap compared to London’ is irrelevant. Benchmark the rent and capital values against local properties. In some markets, people prefer older houses to new build flats; others are dominated by internationally-funded buyers. Consider what is really driving demand for rent or resale in the chosen area.
  • For new, unproven schemes, consider what will happen to the local market. Will the scheme flood the local market with a large number of over-priced properties? This affects supply, not demand.
  • Be cynical: if you’re getting something that sounds perfect, like a discount or guarantee, ask why, and be totally clear on what is covered and what is not.
  • Make sure you do thorough research on each opportunity and look for the downside as well as the upsides. Remember that if something looks too good to be true it probably is.
  • Use as much hard data, for example recent sales and rental comparables and local expert opinions as possible, and remember that no investor is infallible: it’s hard to assess value, and it’s also crucial for avoiding the common pitfall of mistaking price for value.

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