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How do you know the investment property you’re considering is the right one? Here, two experts give us their top tips.
Choosing an investment property can be daunting, especially in a vast country such as Australia. But experts say the process needn’t cause headaches.
‘If you’re a long-term “buy and hold” investor and you stick to the long-standing fundamentals, it’s hard to go wrong,’ says Kieran Clair, director of property public-relations consultancy Bricks & Mortar Media and a board member of the Property Investors Council of Australia (PICA). ‘It’s a very forgiving market in Australia if you stick to your fundamentals.’
But what are those fundamentals? Read on for our experts’ advice.
1. Choose a location with a diversified economy
A struggling economy can push down house prices, so it pays to choose an area where the local economy is resilient. In most cases, that means choosing a capital city, where many different industries operate.
If you invest in an area driven by one industry – for example, mining – you’re susceptible to the economic winds of that industry,’ says Clair. ‘Whereas if you’re in a capital city, it has some resilience even if one industry gets into trouble. You might as well choose a capital.’
2. Buy close to the CBD or employment hub
Experts say homes close to the city are more desirable, and therefore worth more, because they are within easy reach of amenities and close to sources of employment.
‘Generally speaking, the farther you go out from a city or developed area, the cheaper the land becomes,’ says Ben Kingsley, managing director of Empower Wealth Advisory and chair of PICA. But he points out satellite hubs (such as Parramatta for Sydney and Ipswich for Brisbane) behave similarly to CBDs because they, too, offer amenities and employment.
3. If you buy ‘in the suburbs’, pay close attention to amenities
Not everyone can afford to purchase property near a CBD, while others may wish to buy in a suburban area they know well. In these instances, Clair suggests looking at suburban locations with urban amenities nearby.
‘There’s no doubt that, in most capital cities, if you’re within reasonable proximity to good retail facilities, dining or good schooling, those things bode well for capital growth,’ he says.
Another idea is to look for suburban areas with relatively few amenities and buy as close to those scarce amenities as you can. ‘If you can walk to a great cafe while watching everyone else struggle to find a park there, you know you’re onto something,’ says Clair.
4. If you’re buying a new or recent construction, choose a reputable developer
Choosing a well-regarded developer doesn’t just ensure the property you’re purchasing is safe and stable, says Kingsley – it can also help you achieve a better return when you decide to sell.
‘Well-thought-out designs and developments really do attract strong interest and achieve better returns for their buyers,’ he says. ‘Having a solid reputation for quality and a strong brand in the market does appear to make a difference.’
5. Consider a ‘bridesmaid suburb’
‘If you can buy near a really hot suburb – preferably in an adjacent suburb that no one’s heard of – then you’ll probably do better over the long term for your buy-in price, because you’re buying a bit cheaper but you still have access to the premium suburb,’ says Clair. ‘Success generally breeds success.’
He adds, ‘These bridesmaid suburbs usually work well for investors who are a bit tight on a dollar and looking for an opportunity to get into the market at a more affordable price but still do well.’
6. Choose a property that you can rent out easily
If you’re using a mortgage to finance your investment property, reliable rental income can be an important way to cover your mortgage repayments, particularly if your employment circumstances change.
‘There are a lot of people out there who have bought really nice blue-chip capital-gain property, but they’ve had to over-extend themselves to do so,’ says Clair. ‘If their circumstances change, or interest rates shoot up, and their rental returns are low or the property is sitting vacant, they’re going to be in trouble. So, absolutely, rental returns are key.’