The old way to find a good investment property was to follow one rule and that was “location, location, location.” I believe you cannot rely on this simplified approach to find a great investment property. We’ve all heard about properties that are essentially in the same location that grew at different capital growth rates over the long term.
We’ve also all heard of people who bought overpriced properties in the wrong places at the wrong time. In today’s more sophisticated environment where information is paramount to effective decision making, the new catch phrase is “research, research, research.”
Research can often make the difference between a successful property investment and a poor one. It is one thing to say that research is the key to effective property investment but what is it that you need to research? The most common question I get asked is, “what is it that I’m researching and what am I looking for?”
I tell people, one of the most important things when researching property is that you need to have an end goal in mind.
3 GOALS FOR PROPERTY INVESTORS
I believe there are three key goals that investors should focus on.
- It’s important to maximise the mid to long-term price growth. Investors shouldn’t be concerned with the short-term results and what they think might happen in that time (unless you’ve got lots of research time available).
- Investors should minimise the short to mid-term risk. Many investors got caught out at the end of the last boom in Sydney trying to make a quick buck by speculating on property. They bought at the peak of the market hoping that the prices would continue to rise with no intention of settling on the property (most of the time because they couldn’t afford it). When they were due to settle, the plan was to on-sell it for a profit. The problem was that the property was now worth less than what they paid for it!
- I believe it is essential to achieve a healthy rental return. A healthy rental return allows you to hold the asset for longer and ultimately achieve your goal of increasing your wealth.
As a property investor, I hold these criteria in mind at all times. Then I start looking for an area to invest in. On the basis of what’s happened in the Australian property market over the last few decades, I believe there are six key drivers of long-term capital growth. Some are more significant than others, but they all have an impact, one way or another, on property markets and the attractiveness of an area as a potential investment location.The Six Key Drivers Of Long-Term Capital Growth:
- Population Movements
- Economics And Employment
- Demographics
- Infrastructure
- Yield
- Supply And Demand
Understanding these drivers and how they relate to each other is fundamental to my research when choosing an investment location.
“Typically, I search for markets that will satisfy my three key investment goals: mid to long-term price growth; minimised short to mid-term risk; and a healthy rental return.”
When it gets down to the specifics of finding the actual property to invest in, here are the five factors I consider:
Five factors to consider when assessing a property:
- Location – How far is the property from transport, shops, main access roads, hospitals, restaurants/cafes, water, golf courses, parks, recreation facilities, employment centre, views, etc?
- Developer Quality – What is the quality of the property like? Does the finish reflect the price and is it indicative of the area? What has this developer done before? Do they have a reputation for good quality?
- Design – Is the design of the dwelling functional? Are the rooms a good size for the type of demographic in the area? Remember that someone else will be living in the property. It’s not important whether you can live in it or not. The size is only important for the renter, not for you! A single person or a young couple will have very different needs to a couple with two children. Remember to consider the demographic of the rental market. Other questions you might ask are: Where is North in relationship to living space, windows and balconies? If an apartment, does the number of units in the complex suit the demographic of the area?
- Value for Money – How does the price of the property compare to similar properties in the area? It is very important here to compare apples with apples. The common mistake people make when considering value for money is comparing two properties that are not comparable. The things to consider are age, size, location, inclusions, square metre rates and the general overall look of the property.
- Rentability – Who will rent your investment property? What is the going rate for properties of this type and is that a good return when considering what you paid for the property? Is my yield comparable to others in the area? Is there a demand for rental properties of this type? What is the vacancy rate in the area? What are the chances of a rental increase in the foreseeable future?
Investing in property can be very daunting. However, if you have a strategy, know what to look for and stick to your system, without being overcome with emotion; you’ll be well on your way to success. Remember to ask all the right questions, focus on the long-term and be confident.
There is one key ingredient that I haven’t mentioned yet and it is the most important of all – ACTION.
I know many people who have ‘analysis paralysis’ – they do lots of research but never act. The research is a means to an end and those who act inevitably win.
