Do you know the difference between price and value?
Well, you should… because the two principles are quite different and can make a big difference to your chances of achieving financial independence or freedom.
Wise words from the “Oracle of Omaha”
Warren Buffett is an American investor, industrialist, and philanthropist and is widely regarded as one of the most successful investors in the world.
He’s also referred to as the “Oracle of Omaha” because of his astounding investment success.
One of his most famous quotes (and he has quite a few!) is:
“Price is what you pay, value is what you get”.
But do you understand what he means by that and how you can use it within a property investment context?
Price vs. value
The fact of the matter, whether it is shares or property, is that there is a significant difference between price and value.
But if we look at property specifically, you can clearly see how value differs from the price of a property when one property grows in value at a far greater rate than another.
For instance, you can choose a lot of apartments to buy for, say, $600,000, but the value comes into the equation when measuring its performance as an investment and in particular, its capital growth over time.
Consider this: the majority of these properties will be average capital growth performers; some will be poor performers, and a small percentage will actually out-perform the market.
That’s how averages work!
In real-time results, for example, one apartment may be worth $700,000 in five years, while another may be worth $1 million.
Quite simply, that’s where the difference between price and value truly lies.
I only ever invest in investment-grade real estate, because I understand that it’s worth paying a premium for a property that’s more likely to outperform the market averages in the future.
But, in my experience, far too many people get bogged down on the purchase price and forget the bigger picture, which is how that property will perform in the years ahead.
Of course, this is where a “bargain” mentality can be dangerous because a cheap or inferior property will likely always remain that way.
Often because it is in a secondary location.
When investing in property, it’s vitally important to follow a proven strategic formula that will enable you to achieve the best results over the long term.
So, it’s not so much about the price you pay today (although you don’t want to overpay) but what price you can achieve in the future because that property has increased in value.
Its value has outperformed the averages because it’s in the right location, it’s the right type of dwelling, and it appeals to the right type of people (usually owner-occupiers) who are likely to pay the most for the opportunity of owning it.
That’s why value beats price any day of the week, month, or year.
Now is the time to take advantage of the opportunities the current property markets are offering
Sure the markets are moving on, but not all properties are going to increase in value. Now, more than ever, correct property selection will be critical.
You can trust the team at Metropole to provide you with direction, guidance, and results.
Whether you’re a beginner or an experienced investor, at times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s exactly what you get from the multi-award-winning team at Metropole.
We help our clients grow, protect and pass on their wealth through a range of services including:
Strategic property advice – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! Click here to learn more
Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $4Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney, and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment-grade property. Click here to learn how we can help you.
Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
Property Management – Our stress-free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years, and our properties lease 10 days faster than the market average.