If you want to continue to build and scale your property portfolio it’s vital that you select the right assets early on.
Selecting the wrong asset initially can stop you in your tracks because having no growth is probably the worst thing that can happen to you as a property investor.
When looking for the best possible asset for a client there are the four key components that I always look for.
Owner-occupier Appeal
The first one is owner-occupier appeal. When you buy a property, you want the property to appeal to owner-occupiers. So that’s basically people who are going to be living in that property such as young families, professionals or couples.
These are people who get emotionally attached to these properties for reasons such as them being close to schools, being near cafes, beaches, all the things Australians love. This helps the demand side of the equation stay strong over time. There’s a reason that these types of owner-occupier suburbs hold up well through downturns. There’s always that underlying demand from owner-occupiers.
My definition of the perfect investment property is a property that someone wants to buy to live in with their family. Because at the end of the day, these are the sort of people who are going to fight over that property. And when we have people competing for a property that drives prices higher.
Let’s remember, these types of people want to be in good school catchments, they want to be near lifestyle precincts such as cafes & restaurants, shopping, entertainment - they want to be near all the things that make it great to live close to. They also need to have plenty of education and employment opportunities nearby.
Other factors that will help boost already strong suburbs are things like increasing populations and also spending on infrastructure projects. This means more demand going forward.
If you’re buying a property that only appeals to investors, there isn’t that underlying demand. The big gains in property value are driven by the emotional buyer – the home buyer, not the investors. And in a market like we've had recently with finance being tight - when finance slows down, these ‘investor properties can't grow because the investors can't get finance to buy them. So always aim for what home buyers want in high demand locations.
Scarcity
Locations in demand is critical to gaining good capital growth, but the more limited the available supply, the better.
Even after finding a property in a high demand – low supply location, I always ask myself, ‘why is this property different from the other ones in the suburb’? How much underlying supply of this type of product is there compared to the demand.
Buying an apartment is a good example of what I mean.
If you’re going to buy an apartment, you want to try and be in smaller highly sought after blocks because if you're in a building of say 200 or 300 apartments and someone else in that apartment block has some financial issues and need to sell that property in a hurry, at a discount – that then sets the value precedence for what your property's worth because they're all the same.
You need to make sure that your property stands out from the rest to create that extra demand. That’s why it’s far better to buy an apartment in a small group of less than 12, a small group of townhouses or even better, a well designed house.
Median price
A good rule of thumb when buying a property is to try and identify one that is priced close to the median for that suburb or a bit more if it’s a new property (because median house price takes old and new properties into consideration).
For example, it’s not much good having an area with a median price of $750k and buying a property worth $1.5 million because it's way out of the median and the majority of the people in the area can't afford it.
That means there's going to be a smaller market of people who will buy it, which is not what you want. You want to buy around the median price for that area, which suggests the majority of the demographic will both want and be able to afford that property.
Buy the Best Property you can Afford in Australia
For most Australian’s they get started investing in their own backyards. Buying what you know is a comfortable strategy, but maybe not always the best one.
If you live in either Sydney or Melbourne, properties are very expensive to buy. Even if you can afford to buy it, they are expensive to run, which make them difficult to hold.
Tying up all your borrowing capacity in one property in one city, might not be the best long-term strategy.
As an investor, you do want to buy the best property you can afford (comfortably), so you can hold it for the long term. To do that, look outside of your own backyard. This will give you more options whilst not exhausting your borrowing capacity and cashflow.
This way, you’ll have greater capacity to purchase another property over time and more financial capacity for other things important to you.
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