Finding an investment-quality investment
While every property can become an investment - add a tenant and charge rent - not every property is worthy of investment.
Translation for normal folk: an investment-grade property will strongly outperform the averages of property over the long-term.
That last part - over the long-term - means that often when a media article pops up exclaiming the 'outperforming' suburbs to invest in, the gains in those suburbs have already been realised and is obvious to anyone reading the numbers. Finding the suburb that will be outperforming in 10 or 20 years from now is the real challenge.
While location can account for around 80% of the performance as an investment, it is also important to own the right property suit the local demographic and tenant trends. Investment-grade property earns stronger rental yield and has a higher occupancy demand resulting in a greater tenant pool.
Okay, so what makes a property worthy of investment?
1. It is capable of capital growth
An investment property lives in an area experiencing or - the tough part - projected to experience increased population growth or demand. Inner-ring suburbs with supporting infrastructure and affluent attraction - e.g local parks, public transport, nearby restaurants and entertainment options make for the so-called ‘growth corridor’. Planned improvements and additions of public and private infrastructure, a premium demand for properties like the investment and long-term population development/growth are items to look for.
2. Intrinsic Value and Opportunity
Property that has opportunity to add value through refurbishment, renovation or development can help grow your real estate return faster than waiting for an unimproved property to mature. Off-the-plan property comes at a premium price and is often in areas experiencing oversupply and should be avoided. These areas are often flooded with investor supply creating competitively weak rents and low capital growth. Agencies often team with developers to push these properties over traditional residences and can leave many investors feeling burned long after the transaction has concluded.
Look for a property that has value for living in – i.e. that people want to live in. Improvability, land-size, bedrooms are all good things to look for, but always in consideration for the local demand. Following market demand and finding that value will create a healthy loop that means greater tenant pool and a stronger performing asset. It also means a competitive sale when the opportunity arises.
3. It suits local demographics and appeals to owner-occupiers and tenants
As a continuation from point 2, demographics are what drive markets. It can explain why some markets can be thriving while others are stagnant. The appeal of different suburbs and lifestyles draw (or detract) particular demographics and influence the performance of property. A studio unit will not perform as effectively in a suburb demographic that desires large, family homes.
Why appeal to tenants and Owner-occupiers? Well, desirable property that suits local demographics is readily purchased by owner occupiers reducing the stock of available property in the area and pushing up local real estate values.
Long-term Thinking Strategy
Finding the right property is about thinking about more than just the market now, but the long-term development of the area. Many investors bought into the strong returns of mining town booms only for mining to then exhaust the local area and move on, crushing mining town real estate values. When considering the above three points, consider them at a level above the present and think longer.
Will this property survive the next twenty years?
What will this suburb/area look like in 20 years?
Does the property lend itself to quick, easy opportunities to add value?
What is the local demographic, does it suit my property?
Is the local demographic changing or likely to change?
Investment buyers agents excel in this regard. They are in the marketplace every day, looking for the right property to suit their clients needs and goals. Providing services from simply listing or area research all the way to assisting with the purchasing advice and creating investment strategies, buyers agents are a more useful tool than ever to consider for an extra leg up.
By considering an investment and creating a game-plan prior to action, you can be assured of setting yourself up for investment success. And investment success begins with the right property – most of all one projected to make a quality return, not a bargain one.