If you want to maximize your profit potential in residential property investing then you need to understand what is going on in the market place. You can do this by using the 6 W’s approach to analysis.
The First W is Who.
When you are assessing a particular area you should find out who is currently buying in that area. Are they investors, owner occupiers or weekends Are they families, young double income no kids couples, empty-nesters, or retirees
You may well have all of these buyers in the area that you are assessing but you need to know the proportion of buyers that fall into each category
The Second W is Which.
Once you have established who is buying and what proportion of the buyers fall into each category then your next step is to ask which groups are on the increase and which groups are on the decrease.
Discovering this information will show you the buying trends for the area. Professional investors believe that the trend is your friend and always try to be buying one step ahead of the current trend.
The Third W is What.
The last W helped you identify trends. The trends that you are most interested in as an investor are the fastest growing group and the fastest shrinking group. The fastest growing group is your category for potential buyers and the fastest shrinking group is the category for your potential sellers.
The first what to ask is; what is the growing group looking to achieve by buying in this area. For example in the case of owner occupiers and weekenders you will be looking to identify a particular lifestyle. In the case of investors you will be looking to identify a particular form of profit potential.
The second what is what type of properties are they buying and the third what is what are they doing to those properties once they have bought them.
The fifth what is what is the major shrinking group hoping to achieve by selling The sixth is what are they selling And the seventh is what potential is there in turning what is being sold by motivated sellers into what is desired by motivated buyers.
The Fourth W is When.
When did the fastest increasing buyer category start to target this area and when are they likely to reach a virtual saturation point Answering these two questions gives you a good idea how much high profit potential is left in the area and whether of not it is a good time for you to invest there.
The Five W is Where.
Where, specifically, is the fastest increasing buyer group buying within this area and where are those buying trends spreading to Just like I mentioned above the trend is your friend. If you can pinpoint the location trend for motivated buyers then you can buy in front of that trend and maximize your capital growth potential.
The Sixth W is Why.
If you know why the buying habits are changing in an area then you can estimate what type of changes are likely to occur in the future, what other areas are likely to soon experience similar buying trends to this one and how much longer these buying trends are likely to last.
All this provides valuable information for helping you maximize your profit potential.
If you are serious about investing in residential property and you would like to maximize your profit potential then study and acquire skill at using the 6 W’s approach to assessing residential property.