We have all heard the phrase location, location, location! But how many property investors really take this into consideration? With many so called property gurus and experts out there promoting the next “boom area” or “hot spot”, it is hard to determine who actually has the crystal ball to see into the future. Becoming educated on the facts and historical data can help lead you to a better buying decision. There are a number of factors that should be taken into consideration before purchasing investment properties. Ultimately, the right property will hold a strong attraction for both owner-occupiers and tenants as the former maintain market values, whilst the latter covers the cost. To this end, the most important factor to be assessed will always be location as the general rule of thumb is that the location will do 80% of the contributing force behind the asset’s growth. The remaining 20% is relied on the asset selection.
The “80/20” rule should be applied at all times when investing in property as it is always important to select location first. Only then should you consider what property to buy. You’ll want your investment property to have the widest appeal to the mass market – we call this the “owner-occupier appeal”. One-bedroom properties may be cheaper to buy, but they have a restricted audience – mostly students and single persons recently moved out of the family home. On the other hand high end luxury mansions may rent for thousands per month, but they can also potentially stand vacant for long periods especially when the economy slips into a correction. Properties with owner-occupier appeal will attract the majority of the population and therefore will be in greatest demand. Vacancy periods are reduced, and rental income profit is maximised. Also as these properties are bought on emotion through the heart of owner-occupiers, unlike investors who are purchasing based on numbers, these particular types of assets usually rise in value the fastest.
The location is usually the most important factor to a property’s capital appreciation and performance . Of all the boxes that are ticked with purchasing an investment property, all of the components that make up the location – suburb, position, aspect – are one of the few things that cannot be changed. A tired old bathroom can always be redone, another bedroom can be added and a new deck can be built. Even a simple lick of paint can bring an old property back to life. But buy next to an airport or freeway and your options become very limited. So how do we decide which suburb is the right choice to buy, ticking all the boxes for capital growth and health rental yields? The following points are to help you shape your decision on whether you are on the right track to property investment success…
Schools and Universities
Many online real estate services offer proximity to schools as search criteria, and surveys show that distance to a good school is a major deciding factor for where families want to live. The majority of successful property investors will say that local schools and universities are an important part of their selection process of an area. In fact, education is so important that some families begin researching and planning a move long before their kids are old enough to attend school. This is a factor that is only set to grow in importance as the number of foreigners who place a strong cultural emphasis on education increase in Australia. By purchasing property near a desirable school and/or university, you’ll attract high quality family tenants and your property will have fewer vacancy periods.
No one wants to live in the middle of no where. Today’s life is lived at a fast pace, and people want to live where it’s convenient. They want to live close by to schools, shops and public transport. Travelling to work and doing the weekly groceries needs to be quick exercise so that they can focus more on their lifestyle doing the things that they love. For investors this is a very important factor to take into consideration, as tenants will typically be more price sensitive to living costs and may rely on public transport. On the other hand, being too close to these amenities such as next door to a pub can actually have a negative affect on the investment property. Having drunk patrons leaving the pub everyday or a whole herd of kids leaving a school at 3:30pm can be very off putting for tenants. Being close and accessible is the key to convenience.
This is probably one of the most important factors in the location selection. There is historical data to show that new infrastructure projects boost the local economy by creating new jobs and attracting more people to an area. Not only do infrastructure projects increase employment and local property values, but they also provide other benefits to the community such as a boost in the local economy and social benefits of community development which all drive demand. For new infrastructure developments, it is identified that there is often a growth in property and land values in two separate stages. First when the project is announced to the public, it creates renewed interest in the area from investors and developers keen to leverage off the movement, hoping to capitalise on the potential of the area. The second stage is once the new infrastructure project is in place & operational and residents and businesses experience the benefits of the increase in activity within the area, which usually lead to an overall boost in the economy.
No matter where you are in the world, the sun always rises in the East and sets in the West. In the southern hemisphere, a northern aspect is favoured as it provides the most amount of sun throughout the year. Even though property orientation might not be on the top of your priority lists when buying an investment property, having a good orientation when it comes to property can make a massive impact on property values and future capital growth. This can go as far as to which side of the street you’re located as well. While one side may catch the sun and the view as it is elevated on a higher level, the other side could be hidden away on a lower block in the dark from towering trees. This will certainly affect the prices between the two properties so getting to know the neighbourhood first is ideal in order to make the right decisions.
Unfortunately, in my experience advising clients, a lot of property investors don’t realise how important ‘location, location, location’ really is. Therefore, they invest in the wrong place and the wrong developments. If they’re lucky, they come out with a profit – but that profit is never as significant as it could have been. Many investors make the mistake of getting very caught up in keeping to a specific budget, that they compromise on location just to get into the market. It’s no use having a 4 bedroom 2 bathroom 2 car garage home in the middle of a rural suburb where no body wants to live. Over time, even though you will be able to make improvements to the property, the location is there to stay, so choosing the right area is vital if you are looking for long-term success in the property game.