Getting Started With Property Investment – The Six Key Location Tips You Need To Know
Published 9:15 pm 24 Nov 2019
Choosing the right house location is the first step for investing in property. These six purchasing investment property tips from DG Institute founder, Dominique Grubisa will ensure you buy in the right place.
Buying a property for investment is about so much more than the property itself. You need to consider your home loan and the interest rates attached to it. You have to think about your strategy and whether you can take advantage of any type of tax deductions.
But more important than all of that, you need to choose the right location.
The state of the property market varies wildly from location to location in Australia. The same property across different locations will offer a different value, yield, and capital growth.
With this article, we aim to help you to find the right location. But first, let’s dig into why location is so important for real estate investment.
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Why is Location so Important for Buyers?
In an article for realestate.com.au, the team behind the Property Couch podcast examined why location is so important. They say:
“As a good rule of thumb, when it comes to price growth the suburb does 80% of the heavy lifting, and the property itself does the remaining 20%.”
“…fundamentally, an ‘average’ property in a great location is preferable to a great property in an average location.”
Beyond this, there are several reasons why you have to consider location when choosing an investment property. They include the following:
- Offering a property that offers easy access to amenities and public transport creates demand. Tenants and buyers want convenience from their location as much as they want quality from the property itself.
- The location you choose also determines the capital gains you make as an investor. For example, buying in an area that improves over time leads to a property appreciating in value much faster.
- Though you may have to spend more upfront on the property, you’ll also enjoy more demand when you sell. That means you’ll reach your financial goals much faster.
Now you know why location is so important, let’s look at the things to know when buying an investment property.
Tip #1 – Start Outside the Main Markets
New investors have a tendency to gravitate to the major markets, such as Sydney and Melbourne. However, there are affordability issues that affect most investors on way or another.
Property investors will have to raise more money just to afford a property in these expensive locations. And once they have it, they may find that a lot of potential tenants aren’t prepared to pay high yielding rents. This has a direct effect on cash flow.
It’s often a better idea to buy in a smaller market as they’re less challenging to enter. For example, there are many good investments in the Gold Coast, Sunshine Coast, and Brisbane right now.
Tip #2 – Look for Satellite Cities
According to The Free Dictionary, a satellite city is a “…self-supporting city planned within the natural growth pattern of another major city.”
These cities tend to offer much easier entry into investment for those who wish to develop a property portfolio.
Look for satellite cities that gave a lot of planned infrastructural developments. Typically, this means the city’s property prices will rise as the new infrastructure creates more demand.
Tip #3 – Consider Mortgage Availability
You also have to consider affordability in the context of the loan that you can get for a property. It’s quite common to discover that the pre approval you get won’t cover the cost of a property in a major city.
Again, this is not a reason to give up on your goal of investing in property. It simply means that you should look outside of the major cities to find more affordable options.
You’ll find this a particular issue if you’re set on investing in Sydney. Even with the recent downswing in prices, it’s still one of the most expensive cities in the country for investors.
When choosing a location, look beyond the biggest and most expensive. You’ll often find that you get better results when you buy in a location that’s more affordable.
Tip #4 – Make Sure the Numbers Add Up
It’s always crucial that you buy based on logic rather than emotion when investing in property. Simply put, the numbers have to add up. You have to see that there’s demand for the property from buyers and tenants. Plus, you need to see that there’s a pattern of sustained growth in the location before you buy.
These are the things you should have in mind at all times when buying an investment property. Once emotion comes into play, you’re going to find your ability to make rational decisions becomes compromised.
Tip #5 – Watch Population Dynamics
Every location has supply and demand dynamics in place.
Your ideal investment is in a location that has low supply and high demand. This means you’re going to attract a lot of attention from tenants and buyers when you put your property on the market.
That demand lowers when the dynamics change. Even a high demand area sees a reduction in profit potential when there’s plenty of supply to meet that demand.
That’s why it’s so important to keep an eye on the location’s population dynamics. You want to see people coming into the location so that you can buy when demand is high. But at the same time, you also need to get in early so you don’t buy in a market that’s saturated with properties.
Tip #6 – Don’t Discount Prime Locations in a Downturn
Anyone who’s watched the market over the course of 2019 knows what’s happened in Sydney and Melbourne. Both cities have experienced marked downturns over the course of the year, with prices dropping about 2% month-on-month.
This may make such locations seem like an unattractive prospect.
However, now may be the time to enter these prime areas. The drop in property prices has made them more affordable than they’ve been in several years. This means it’s easier to raise your 20% deposit and get your hands on a home loan.
The key here is that these major locations still have a lot to offer. Look beyond the short term issues and you’ll see they have strong economies and powerful infrastructure. This means they’re going to rebound sooner, rather than later. If you can buy at the lowest point of the downturn, you stand to benefit from the upswing that’s going to follow.
Location is always key when you’re investing in property. Making the wrong choice could result in you losing money, even if you think you have a desirable property.
The property investment advice shared here will help you to make an informed decision in regard to location.
Always look at the numbers when choosing a location. Falling in love with a property means very little when the numbers don’t add up.
If affordability is an issue, it’s important to recognise just how much potential lies in properties outside of the major cities. There’s plenty of housing stock in satellite cities that would make good additions to your portfolio.
Finally, take a long term view when making your choices. The state of the market right now doesn’t necessarily dictate where it’ll be in a few years’ time.
Of course, there’s still plenty of work to do once you’ve found a property in the right location. Now, it’s time to add some value to make it even more desirable.
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