Selecting Your Property – Property Investment 103
You’ve made it to here, well done! But now the big question arises… Where should you buy your Investment Property?
Now comes the time and effort investment to select a property that:
- Meets your property investment goals
- Is affordable
- Is in the right location
- Ticks the right boxes in regards to return and growth
- Do The Research
One of the hardest aspects of property investment is doing the property research – knowing the answers to all the what, when, why and how questions you will have. This takes time, patience and persistence to be done thoroughly. You can’t just limit yourself to looking at what is available in the real estate sectors, you need to search broadly and encompass factors apart from property – such things as Council planning documents for Local Government Areas, suburb demographics, economic trends, what the banks are doing, and real estate data for suburbs is a good start to heading in the right direction.
- Does the location have a need for more houses?
Population growth in a particular suburb can show areas that are set to attract further development and may have a shortage in housing. When looking at this indicator it is important to look for consistent growth over a longer period of time rather than quick bursts of growth over a short period of time. Then you need to work out what is driving this growth and is it sustainable. It is important to determine if the population growth is industry related or seasonal which makes the property market reliant on uncontrollable fluctuating factors. Be careful with this indicator – you want sustainable population growth from long-term industry investment, and you need supporting facilities for the growing population. Population growth is generally considered a positive factor for an increase in housing demand.
- Rental Demand vs Rental Supply
If a particular suburb is experiencing a higher than normal level of rental demand, then its vacancy rate – the percentage of all rentals that are unoccupied or not rented at a given point in time; will be low. The aim is to find an area with a high demand for rental properties, and therefore a low vacancy rate. As a guide, a normal rental property will experience a vacancy rate of approximately 2.5% per annum. A low vacancy rate also often indicates an area where supply may not equal demand and therefore the rental market will be able to demand more rent from tenants. It’s about consistency – looking for a suburb where you can get the right return for your property.
- New Development – Tenant Attractiveness
Does the suburb or area you are considering have any new development proposed? Are there new land releases proposed for housing or any new industrial estates being developed? Are there new shopping complexes or upgrades to existing facilities proposed?
These are all important. If you are looking to purchase an investment property, the area has to be attractive to tenants. There has to be facilities to cater for their lifestyle and places for employment. It’s always a good idea to take notice of what some of the major companies like Stocklands, Woolworths, and Bunnings are doing. If they are willing to invest in an area where they need thousands of people through their doors to make their investment viable, then it’s a pretty good indication that the suburb has potential.
Other facilities that are important to tenants are the proximity of Schools, community facilities (parks, sports ovals, libraries) and the availability of public transport. These services increase demand for property and this reflects on the rentability of your investment property. However, ensure you combine development indicators with other indicators mentioned to make an informed decision on where to buy. Lots of development and facilities does not always mean there is a demand for rentals – particularly if owner occupancy rates are positive.
Finding more information….
To get information about the property market, we suggest checking out the following resources as a starting point:
- Local Area News articles
- Local council reports
- Google Street view
- Investment/property magazines
- Financial review publications