What makes a good investment property?

Written by view.com.au in Buying on June 10, 2011

What makes a good investment property?

Beginner’s Guide to Investing

A good investment property is likely to deliver greater returns in the future; not only in the form of capital growth but also in the form of rental returns. In order to maximise investment return, here are some key considerations to make:

The Right Stage of the Property Cycle

The property market moves in cycles. Property values may rise due to strong market growth, remain steady or even decline during certain phases of the cycle. Thus, as an investor it is important to know where the market is within the cycle to ensure you secure your property at the right price.

For more information on the property cycle, refer to ‘Understanding the Property Cycle When Buying’, page 7 of this guide.

The Right Location

Location is integral to acquiring a good investment property. If the location is chosen correctly, the chance of gaining higher returns from your investment is far greater than if the location is not desirable and suitable for those looking to live close to amenities. Factors to consider are:

  • Close proximity to certain amenities increases the desirability and value of a location and property; these include:
    • Schools
    • Public transportation
    • Public facilities (post office, libraries, parks, medical centres, etc.)
    • Shops and markets
    • Lifestyle activities (restaurants, café strips, beach, etc.)

Therefore, it is important to consider proximity to these when buying your investment property.

  • When selecting an area to purchase a property in, try to avoid those that are likely to be dependent on a sole industry i.e. manufacturing. Although it can be beneficial when the industry is doing well, if it falls, your property’s value may decline as a result.
  • Some of the best places to buy are those experiencing population growth. As population grows, infrastructure improves and the desirability of an area increases.
  • Living within close proximity to a major city (i.e. 10 kilometres) is always highly sought after. Whilst many of these suburbs attract higher prices, look for emerging suburbs which may have strong growth potential.

The Right Property

When searching for an investment property, you should aim to secure one which will be in continuous demand by tenants, as well as future home buyers. One factor you should consider is appropriateness of the property for the average age of residents in the area.

It is therefore important to do some research to discover the demographics of your area of choice and determine what is important to this demographic. For example, if you are buying in an area with an older community, do not purchase a property with a staircase or an inconvenient layout.

The Right Return

Many property investors make the crucial mistake of choosing a property based on emotion, rather than finances and logic. A bad purchase may result in capital growth below the market average or rental income which does not come close to covering the monthly costs to maintain the property. It is therefore vital to do your research to establish your strategy before making a purchase.

Researching the Market

Over recent years a number of web sites have been established to enable consumers to access current sales results and historical sales data. This information will assist you to gain a good grasp of current market trends and historical growth patterns. Some of them include;

  • PropertyDATA .com.au
    PropertyDATA.com.au contains data collected by the real estate institutes. The site will allow you to access the same comprehensive, accurate and up to date property sales information relied upon by estate agents, valuers and Australia’s major banks. The site provides free as well as paid property reports, median prices, capital growth figures and suburb profile information.
  • Residex
    Residex provides consumers with the ability to purchase information on all areas of the real estate market, such as analysis of market movements, price estimation, historical growth data and more.
  • Real Estate Institutes
    There are real estate institutes across each state of Australia which act as the industry body in that specific state. The institutes amongst other things publish market commentary as well as median prices and other market data.