Friday, March 29, 2024 | Ramadan 18, 1445 H
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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Four scenarios to buy to live or to buy to leave

Stefano
Stefano
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First time home buyers are often facing a crucial dilemma. To put it the way The Clash sang it in a famous song, the question is: “Should I stay or should I go?” In fact there are type of property investments that are so good to be missed, so some first time buyers might be wondering if could be a better idea to buy it to live, or to buy it to “leave” (as in rent it or sell it).


A main analysis to be done is with regards to trends. There are generally 4 scenarios to keep in consideration when it comes to appraising a property investment. I call them Flat Bottom, Rising Star, Sky Top and Declining Ride. Here are my suggestions on when to buy to live and when to buy to ‘leave’.


1. FLAT BOTTOM


This scenario occurs when an area has not a slight indication of improvement. It is seen as a desolated area, or an unstable region, or extremely poor. In this type of scenario it is likely to snatch phenomenal deals for very low capital.


Although the risk is minimum, there is only a possible negative scenario, that the place will never pick up. When a property is purchased at very low price, there is not much risk to lose any money, but at the same time, one cannot expect massive profits or even any at all.


If these type of areas are close to your heart as a property buyer, I would suggest to buy to live. There are places in this world that investment sharks would not touch with a stick, but at the same time some others might have been born there and collected memorable experience. Buying a property here to rent or sell, is not the wisest choice.


2. RISING STAR


It happens when an area is becoming popular on the press and in the media. When folks are talking about how this place is going to develop soon and everyone want to invest there. Prices are usually going to grow quickly, month after month.


One must be willing to read a lot and travel to the candidate location as often as needed to shape a thoroughly idea. Rising Stars are the precursors of successful business investments. If sustained by politics and business, these areas can develop into jewels. Whether they are countries, regions, cities or simply districts in a larger city, the variable that can transform a ‘make it’ into a ‘break it’ can be subtle.


My benchmark for identifying raising stars is the presence of major business players such as Starbucks, McDonald’s, 7-Eleven. Usually they invest in areas that are bound to grow and stabilise. If I see a condo with empty units, but a 7-Eleven store open at the ground floor, I know that soon or later that condo will pick up in popularity.


Also the presence of road or infrastructure works is important. If they are building more roads, chances are that more traffic will pass by. In mega cities, a clue is in the development of new urban train stations. Rising stars are exciting places to stay, but also one of the best ways to make a profit. I would say that it is a 50-50 game. If you can afford to buy 2 properties, buy one for yourself to stay and one to rent or sell.


3. SKY TOP


These places have escalated the latter of wealth and are now unreachable to 80 per cent of more of the population. There is a vague chance of being able to find someone willing to sell below market price, but bear in mind that market price is usually already quite high.


Everyone wants to have a piece of a success story. So when a country, or a city, or a district booms, prices curb interest by shooting high fast, and once they reach the top, very often they stay there for quite a while. In certain cases this process suffers of minor rebounds of 8 years or less, where prices oscillate of a few points percentage, but eventually go back to stability.


Usually Sky Top prices allow to purchase one property only. If that is your case, choose to live there. Prices are already at the top and unlikely will grow further.


4. DECLINING RIDE


It is perhaps the most challenging situation for a property investor. It manifests itself when an area has been in the Sky Top category for too long and another Rising Star is casting shadows over it. Decline of the area is almost simultaneous with price drop.


Only adventurous risk takers should approach this type of scenario, hoping for a quick rebound or being able to sustain a long period of idle standby.


For certain areas it may take decades or centuries to regain popularity and wealth. Countries affected by war are usually encompassed in this category. If someone can hold a bad investment for many years, in the long run prices could go up again.


When most people move out of an area, it becomes more and more challenging to rent or generate interest to acquire such property.


Generally try to adapt to live there, and if the scenario turns grim as the environment decays, be prepared to make a loss when selling or rent it out at as cheap as you can.


Stefano Virgilli


stefano@virgilli.com


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