Choosing an investment location

Posted by on Feb 6, 2015 in Homebuying tips | No Comments

Monopoly_HomeIn the Australian property market today, four in 10 buyers are investors* who all face the same crucial question: where to buy.

The old adage ‘location, location, location’ is especially true for investment property. There’s a direct relationship between location and demand, and demand is the biggest driver of capital growth. So to maximise your capital growth, you have to buy the best property in the best possible location you can afford.

Here are the crucial steps in choosing a location.

Step One: My strong preference is to buy property you can drive past. If it’s near where you live or work then you will have a much better sense of the area and it will be easier to pick the best properties.

The initial acquisition is far less risky if the property is in a location that you can thoroughly research. Sure, you can do a lot of research on the Internet, but there’s nothing like spending a few weekends attending opens, getting to know a few agents and immersing yourself in the search.

Having said that, if there’s no capital growth happening near where you live and work, or you simply can’t afford to buy there, then obviously you’ll need to look further afield. Just make sure you know the suburb really well before you buy.

Step Two: For city investors, the inner ring suburbs have historically provided stronger growth than suburbs further out. Get a map and draw a circle 10km out from the CBD to identify potential areas. If you’re in a coastal area, try to get as close to the beach as you can. Australians have a longstanding love affair with the ocean and they’ll always prefer it on their doorstep rather than 10 blocks away.

Step Three: Go for established suburbs over new suburbs. The supply of property in established locations can’t easily be increased, so as the population increases, so does demand — forcing prices up.

Step Four: Go for a suburb with period architecture. Australians love homes with character and period charm goes a long way in boosting property values.

Step Five: Now for some crucial ingredients…

  • Walking distance to cafes and local shopping village
  • Walking distance to good public transport
  • Good proximity to the CBD or a major employment hub
  • Quiet, leafy suburban street — no main roads.

Step Six: Now look for suburbs that are within your budget. If you love a particular suburb that is out of reach financially, look at the neighbouring suburb and the one after that until you find a location you can afford. Suburbs surrounding a hotspot are usually next in line for great capital growth.

Step Seven: Consider locations undergoing change. Pick a suburb and take a drive. See if homes are being renovated, if commercial or industrial space is being replaced with new apartments. You can also check out Census statistics to see the type of people living there and their incomes. If more professional couples are moving in, perfect. Nothing changes a suburb’s profile like young couples willing to do a bit of renovating. Also look at average incomes — if they’re increasing, then that’s a strong sign a suburb is changing face.

Step Eight: Talk to the local council. Find out what is being planned for the area. Any major new infrastructure such as a new light rail, road upgrades, new shopping centres or schools — all of this can turbocharge your capital growth.

So, now you’ve picked your suburb.

Next you have to drill down further to find the best position within that suburb. Each suburb usually has several different precincts each with a different level of demand. You need to find out which streets — and which sides of those streets — are best.

Local agents and property managers are a great source of information, as are shopkeepers, pest and building inspectors and other locals you’ll meet at open inspections. Google the suburb and see what’s being said online about the area. Most importantly, get on the ground. In many cases, it’s fairly obvious which side of the suburb is the poor cousin and which streets are more desirable (look for wide and leafy!).

Once you’ve got this nailed down, you’re pretty much ready to buy. The worst thing you can do at this point is waver. Don’t second-guess your research and don’t keep telling yourself that you need to find out more. There comes a time, after reasonable due diligence, when you just need to get dive in and make a purchase.

*Australia’s largest mortgage broker, AFG

JohnMcGrathBookIn The Ultimate Guide To Real Estate, John McGrath — one of the Australia’s most innovative and successful real estate experts — shares his vast knowledge of the Australian property market. To purchase your copy of his best-selling book, visit the Total Real Estate Training website.