Price is what you pay – Value is what you get

Warren Buffett is an American investor, industrialist, and philanthropist. He is widely regarded as one of the most successful investors in the world (ref:Wiki). “Price is what you pay, value, is what you get” is one of his many wise sayings. And this principal applies with property, just as much as it does with the share market.

You can clearly see how value differs from the price of a property when one property grows in value at a greater rate than another.  For instance, you can choose a lot of apartments to buy for, say, $600K. But the value comes into it when you sell. Consider this: the majority will be average performers when it comes to capital growth, while some will be poor performers and a small percentage will out-perform the market. So, in 5 years time, one apartment may be worth $700K and another may be worth $1M. That’s where the difference between price and value really hits home.

Often it is worth paying a premium for a property that is more likely to perform ahead of the median growth rate for its suburb. Many people get bogged down on the purchase price and forget the bigger picture. This is where a bargain mentality can be dangerous.

You always need to ask yourself “does this property have more of the characteristics that buyers in this area like?” If the answer is yes, it may be an overachiever. If the answer is no, then you do need to be very focussed on the price you pay, as the value could really suffer over time.

Further reading:

Capital growth or yield? Which will make you rich?

Boom or bust, where to buy in the property cycle

9 Reasons You Should Avoid Buying A Property

Published:- 8 August, 2016


Please note: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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