May 13, 2016
In his recent Your Investment Property Magazine article Philippe tackles the subject of what attributes every investment property should have:
Every now and then, I receive an email that makes me shake my head. You’ve probably received them too; I’m talking about those emails that promise to share all sorts of complicated strategies and secret ‘formulas’ to show you how to make money out of property.
"Just sign up here, pay this money, and we’ll share all of our ‘secrets to wealth’ with you..." In reality, most of it is just bells and whistles. Many property ‘experts’ aim to convince you that investing in real estate is actually much harder than it is, so they can convince you that you need to work with them (at an exorbitant cost) to make investment decisions.
The truth is that property investing is actually quite straightforward. It’s unlikely that you’ll need 20 properties, or that you’ll need to use complex, high-risk investment strategies, to create a financially comfortable or even wealthy retirement through property.
Instead, you simply need to invest smartly. When seeking out good quality properties to invest in, these are some of the attributes to look out for:
1. A central location
This is definitely the main driver of property price growth. It makes sense that if you buy in a central location where people have easy access to everything they need – from employment and transport, to amenities like schools, shops and childcare – then that property will remain in demand with renters for a long time to come.
2. Owner-occupier appeal
You want to invest in area that appeals to renters, obviously. But if it is too high of a rental area, it can become rundown and unkempt, as owner-occupiers can be more house-proud than tenants. You also want to buy a property that has resale potential with both investors and owner-occupiers, rather than a home that only other investors will buy.
3. Broad tenant appeal
I’m a big advocate of finding a property that appeals broadly to many markets. For instance, I once bought a property in Brisbane located near a big university, so I furnished it and rented it out by the room to students for a strong rental return. But I could also rent it out to a young professional couple, a small family or even retirees. You don’t just want your property to attract just one segment of the market; you want a find a property that can be adapted to suit the majority of the market.
4. Priced around the median
The median price bracket is where you should aim to buy. This will have the broadest appeal with most renters and potential buyers, if and when you decided to sell. Take a suburb with a median house price of $600,000: I would suggest buying a property around $550-$650k. Much lower than this, and the property is likely to be too small or under-featured to suit the market. Much higher, and you could be investing in a high-end home that fewer potential tenants can afford to rent.
5. Close to infrastructure
It goes without saying that your investment property needs to be close to infrastructure. What does this mean and what should you look for? Essentially, think of all the things that are important to you, such as easy commutes, via good public transport or clear access to main arterial roads. If the government or private sector is spending on more infrastructure in your suburb’s area, then that’s a good sign of future population growth, too.
6. Offering convenience
Do you like living near to amenities such as cafés, schools, childcare, shopping centres, gyms, restaurants and entertainment precincts? Guess what: so do your tenants. Look for the streets and apartment complexes that are most desirable to the target rental market.
7. Numbers that add up
Ultimately, you want to find a property that delivers a balance between yield and capital growth. Look for gross yield of 5 per cent plus, and strong average annual capital growth of at least the same.
The above attributes are just some of the traits you should be aiming to find in your next investment but remember, finding the right property isn’t as complicated as it may seem.
The ‘secret’ to long-term success in property isn’t much of a secret at all. Source good quality growth assets; hold them until you plan to retire; live off the rental income. It’s as simple as that. If you buy appealing, well-priced properties that suit your target rental market, then you’re well on the right track.