PROPERTY – ASSET OR EXPENSE?

Is property an asset or expense? At first glance, the question seems to be simple to answer, of course, property is an asset. However, there is more to it than initially meets the eye.

When looking at a primary residence, whether the home is an asset will be determined by whether the value of the property is appreciating or depreciating. There are several factors that will have an influence on the property’s value such as the market, development in the area and the demand for property in the area. When it comes to a second or investment property, whether or not it is an asset will be based on whether it is generating a profit from the income it receives.

While some people may perceive higher end homes as assets, it is not about price but rather about growth in value. Regardless of which end of the scale the home is on if the value of the home is showing growth – it is an asset.

So how can you ensure that you are buying an asset and not an expense? Well, that all comes down to doing the research and making the right decision upfront. When selecting a property, there are some aspects that need to be considered, such as location, which is a key element in the home’s potential for growth in value. Another aspect to pay attention to is the price of other homes in the area and how they have grown over the last few years, as well as any future development plans that may be happening in the area that could have an impact on the property’s value.

A great way to assess an area’s potential for future appreciation is by looking at the history of the area. By looking back, it is possible to some degree to look ahead. Useless there are big changes happening in the area, it is a fairly safe bet to gauge the future appreciation potential of an area based on its past performance.

Upgrades to infrastructure or the development of new amenities will positively impact the appreciation potential of the homes in an area. While it depends on the facility, the introduction of a mall can boost property values as it offers convenience to the residents. However, the shopping mall will only add value to an area if it is a well-run establishment that attracts the right kind of foot traffic. That said, I would say schools have a greater influence on property values than shopping malls. Many potential buyers look for a property with education in mind, whether they currently have children or not. Again, how the school impacts on the area will be based on the school and its reputation. A good school that offers an exceptional education will increase demand for property surrounding it, which will push property prices up.

The success of a property investment is linked to the decisions made at the start of the purchasing process – not when the property is sold. To purchase an asset that grows in value over time, you need to do the research, before making the final decision and putting pen to paper.