One thing that we all know is that investing in property is a fantastic way to build wealth and set yourself up financially.
However, when it comes to what strategy to use and the elements of a good investment property, everyone has a different opinion.
As a Sydney based buyers agency, we’re very fortunate to be able to focus on some of the areas that have historically shown to be some of the best capital growth suburbs in the entire country. With that being the case, we are able to seek out investment properties for our clients that have a very high probability of continuing that growth in the future.
These are some of the key elements that we look for in a great investment property.
When it comes to property it’s very clear that the high-demand inner-city areas of Australia, particularly, Sydney and Melbourne, have been some of the best-performed areas over many decades.
This is because those locations have so much to offer in terms of both amenity, employment opportunities and just an all-round great lifestyle. This is very clear when we look at places like the Eastern Suburbs, Northern Beaches or North Shore.
Notably, even when sentiment took a hit in early 2020, and international migration fell, these locations were still seeing strong demand and that has only continued to increase over the past 12 months.
While other areas might experience short periods of outperformance, these blue-chip locations will continue to perform year in and year out and will almost always be leaders of capital growth over long periods of time.
Owner Occupier Appeal
When we break down what makes a great investment property, one of the most important elements is that it must appeal to owner-occupiers. At the end of the day, there are far more owner-occupiers in Australia than investors and they ultimately drive the market.
This is also true on a micro-level. When you’re selecting a property it needs to appeal to owner-occupiers. If you’re buying into an area where families want to live, that means your investment property will need to cater to families in terms of space and access to things like good schools.
For apartments, they need to be close to jobs, amenity and the great lifestyle factors a professional couple might be seeking.
When the time goes to sell these types of properties, you can be sure, you’ll have a stream of buyers prepared to pay top dollar.
Even if we find a location that ticks both of the above boxes, we still need to make sure the type of property we’re buying is going to see long-term demand.
Supply and demand will always dictate how much a property is worth and one way you can stack the odds in your favour is by only buying properties that are scarce. The most obvious example of this is buying an apartment in a small unit block, versus buying into a large off-the-plan building.
Small unit blocks might feature four or fewer apartments and many don’t even have strata fees. Whereas a large unit block might have 300 apartments or more and sky-high fees.
While it might be nice to live in a brand new apartment, the reality is that these large buildings have no scarcity at all. For example, if someone in the building is forced to sell their property quickly for a value well under market, that will negatively impact your property’s valuation.
Similarly, if you’re trying to sell your property and there are five others on the market at the same time in that very building, you’re not likely going to be in a strong position at all.
Your Personal Situation
While we’ve focused heavily on the attributes of the property that make it appealing as an investment arguably an even more important factor is whether or not you can actually afford to hold onto it.
In the current environment, interest rates are low and that means borrowing money is cheap. However, when you buy into the blue-chip areas of Sydney, you are invariably buying an asset with a lower yield given its overall higher price point.
Over time, these properties do become neutrally and positively geared, as rents increase. But it’s still important that you are in a financial position, that you can hold that property over a long period of time.
Capital growth doesn’t occur in a linear fashion and we see periods of time where prices are flat. By making sure you can hold onto a property for a long time, means that you’re giving yourself the very best opportunity to realise that growth and ultimately build the value of your property portfolio.