The problem with housing is generally that property investors or homeowners have a tendency not to do their sums with housing. We all may spend ages studying a company and its prospects and sales and cost of sales and look at the sector etc etc before buying shares but we do almost nothing when investing in property.
The heart not the head rules when it comes to housing.
I am living in Canada at the moment and we have sensible house price inflation and banks wont lend excessive % of house value... ergo we dont have the same massive inflation seen in much of Europe and the USA.
I moved to Canada 3 yrs ago largely due to the absurd exchange rate of the GBP to $CAD... I am up 25%+ already on just exchange rate corrections plus the HPI is doing a little better than inflation as I picked a growth area.
I am involved in 3 projects at the moment and I would not get involved unless or until the numbers run. I pass up most of the so said opportunities !
There are simple rules to follow when calculating the actual value of a home and avoid terrible mistakes !
(1) The first one is cost of land plus cost per sq ft to build = end cost of home.
(2) The second is to look at what the property will rent for honestly. If its a private home then 6% rental/value is a guideline. If it an investment property then 10% is more the norm. These are MINIMUMS given present borrowing costs.
(1) gives you your base cost and (2) tells you what premium to build cost is appropriate.
People that mislead themselves with high prices saying that its OK because the area is sooooo in demand are whistling ol dixie. Its cr*p ...
The rental value should never be ignored because it shows demand in 90% of cases.
Other consideration to fine tune your investment is to look at average wages in the area and what people can afford. If a family on average income in the area you are looking in cant pay that house off in 15 to 20 yrs then its NOT worth the amount you think it is.
I suppose all I am trying to say is no matter what corner of the world you end up in ....DO THE SUMS !
Have a great new year ....
