What is it about a particular location that makes it a reliable real estate investment prospect? What factors can indicate that an area is a “good” location to invest in?
You can change a property, but you can’t change its location. While the real estate expression, “location, location, location” might be a cliché, it holds a special meaning for buyers. During a real estate boom, which Australia has just experienced, buyers have to fight over the select few properties that hit the market, meaning they will be willing to buy almost anything. But when the market shifts and supply increases, only those buyers who chose houses in the best locations will continue to see their investment appreciate. This difference in value is, essentially, the result of a home’s location. As we’re about to discuss, selecting a well-positioned property is essential not only for your lifestyle but for the long-term value of the home as well. So, when looking at buying an investment property, what makes a “good” property location?
1. Consistent population growth
To make money on investment property, investors need to be sure that there will be rental demand for their investment in the years to come. Whether you invest for the purpose of earning an income now or you are investing now to make capital gains in the future, your fundamental requirement for either of these purposes is to have people in the community who want to rent or buy your property. This is highly dependent on continual population growth in your area.
Luckily, Australia has seen consistent population growth through natural expansion and our immigration policies, both of which contribute to the constant need for new housing. Capital cities are especially good property locations when considering population growth as residents will always flock to major cities for work, education, and lifestyle opportunities.
2. Proximity to employment opportunities
Population growth almost always comes with job growth; otherwise, population growth is not sustainable. As soon as job opportunities dry up, people who miss out are likely to relocate in search of better prospects.
Property investment in a central employment hub or in a zone set for a major infrastructural development will appeal to workers who want to work and live close by.
Buyers should be aware that such properties will likely be expensive as other investors will be seeking the same sort of properties. If these properties are out of your price range, seek houses in adjacent suburbs, or look into future development plans with your local government to find out where the next big employment hub (shopping centre, business centre etc.) will be going up.
3. Limited supply compared to demand
Basic money-making economics dictates that the less supply of an in-demand product, the more money can be made from selling it. The reverse is also equally true – a larger supply means buyers have more options to shop around, so sellers will need to lower their costs to meet the current market demands. Therefore, to make money in real estate, you need to invest in an area where demand outstrips supply as higher demand will almost always result in higher rental and sale prices for investment properties.
The problem is, you can’t just type “supply” and “demand” into Google and get a definitive answer. You’ll have to conduct extensive research or find other market data to draw your own conclusions. To do this, you’ll need to investigate such things as population growth, high auction clearance rates, or rising property prices.
4. Sought-after neighbourhood
Every buyer has their own opinion of what a good neighbourhood should look like. Still, there are a few characteristics that appeal to most, and these are the ones to look out for when selecting the location for your investment property:
- Accessibility – the neighbourhood should have connections to the nearest city’s major freeways at more than one entry point. Otherwise, the morning and evening peak hours could be such a nuisance that the area will gain a bad reputation, and people won’t want to live there. That’s also true of the area’s presence or absence of public transport facilities.
- Appearance – the neighbourhood’s appearance matters more than you might think. Attractive landscapes, towering trees, and community spaces may contribute significantly to a neighbourhood’s appeal.
- Amenities – the area should have good schools, shops, grocery stores, cafes, retail spaces, entertainment venues, and more – all offering a sought-after lifestyle. Preferably, your investment property should be easily accessible to these amenities.
5. Good price-to-rent ratio
The price-to-rent ratio of an area will show you if buying for rental returns now or capital gains later are the better option.
For new investors, it’s generally easier to make money if the ratio is low. If the price is low compared to the rent, it means that from day one, you could rent it out at a price that covers the monthly mortgage payments.
Conversely, if the ratio is high, it may suggest that there are a lot more buyers than renters in the area. You might be able to make more money by flipping houses than by renting it out.
A great location doesn’t always mean inner-city suburbs – many of these principles can be applied almost anywhere. While the inner suburbs have benefited from strong capital gains in the past, there is still growth potential left in outer areas. Getting to know an unfamiliar area is critical before buying, so do your research, and speak to neighbours, local business owners, and patrons to try and understand what makes an area or a street a good one.
The location is one of the most important decisions that you’ll have to make when looking for a property to invest in. Because of this, you should take your time in assessing whether a particular location is conducive to growth or not. Are you in the process of finding the right location to buy an investment property? Always seek the assistance of a reliable property conveyancer. Jim’s Property Conveyancing has offices in Melbourne and Brisbane and can provide you with comprehensive advice and assistance moving through your property transaction. Please get in touch with our friendly and experienced staff on 13 15 46.