Many people believe that investing in property is complicated, difficult and expensive.
So we decided to take a look at what makes a good investment property.
A well chosen property is likely to deliver a greater return in the future; not only in the form of capital growth, but also in the form of rental returns.
Therefore it’s worth considering the following information to maximise your return on investment:
The right location
Location is everything when purchasing an investment property. When you purchase in the right location you exponentially increase your chances of capital gains.
It’s important to purchase in areas with:
- Shops and markets
- Lifestyle (restaurants, cafes, bars, beaches, national parks, etc)
- Public transport
- Public facilities (medical centres, parks, etc)
- Strong population growth
- Employment (try to avoid purchasing in areas which are dependent on a single industry)
- Strong infrastructure growth (roads, transport, services, hospitals, etc)
Many investors also like to purchase properties within 10km of a major city. Generally these inner city areas are highly sought after.
A good strategy is to look for emerging suburbs, which neighbour more expensive suburbs. Often these sister suburbs have strong growth potential.
The right property
Selecting the right property is crucial to building a property portfolio. It’s important to purchase in an area with a strong rental demand and to understand the demographics of an area (age, income, employment, house hold size, etc).
By understanding demographics investors can purchase the most appropriate property based on the needs of the area.
The right return
Unfortunately too many investors make decisions based on emotion, rather than finances and logic.
As a property investor a bad purchase can affect your personal, wealth creation and lifestyle goals. It’s therefore vital to do your research and establish a strategy before making a purchase.
Almost every investor you meet will have different criteria in regards to what makes a good investment. Therefore it’s important to find a strategy that works for you.
The right stage of the property cycle
The property market moves in cycles. Property values rise due to strong demand and remain steady or decline during other phases of the property cycle. Therefore, as an investor it’s important to know which stage the markets at within the property cycle to ensure you purchase your property at the right price.
There are 4 key phases with the property cycle.
1. The Boom Phase
The boom phase tends to be the shortest in the cycle, during which property prices increase at a rapid rate. This phase generally begins slowly as investors recognise that property returns such as rental payments and property prices are increasing.
2. The Slump Phase
The slump phase occurs as a result of an oversupply of property due to the activity of builders / developers and sellers in the boom phase. With more investment properties on the market, vacancy rates increase and rental returns begin to decrease.
3. The Stabilisation Phase
The property market does not usually jump from a negative period to the next upturn. Generally, a short phase exists in which various economic factors catch up with each other and stabilisation in the market occurs.
4. The Upturn Phase
The upturn phase sees vacancy rates slowly fall, rents start to rise and property values start to increase creating investment opportunities. Property values generally start increasing in the inner suburbs, or those close to the beach first and then move out to the middle ring of suburbs and eventually to the outer suburbs. We would love to hear your feedback on what makes a good investment property in the comments below.
The information contained in this blog is for informational purposes only. No responsibility can be taken for any results or outcomes resulting from the use of this material. While every attempt has been made to provide information that is both accurate and effective, the author does not assume any responsibility for the accuracy or use/misuse of this information.
I am not a lawyer, accountant or financial planner. Any legal or financial advice that I give is my opinion based on my own experience. You should always seek the advice of a professional before acting on something that I have published or recommended.