What Makes A Good Investment Property


There are so many options out there when it comes to investing and everyone is an expert. From family members, friends, sales people and the media.

This article is aimed at DIY investors that want to sharpen up their real estate purchase without having to get advice from sales people.

Some tips are from Australia’s most successful investors and what they do when buying an investment property.

What makes a good investment property


Tips On A Smart Investment

Planned infrastructure

Properties located near train stations, schools, shopping centres and other amenities bode well for investment growth. This is a result of their increased reputability and lifestyle appeal for renters and buyers.

When spotting a good investment suburb, look for any planned infrastructure, which may positively impact the future sales price of the property. You can get this information from local council websites and government transport organisations or the Victorian Infrastructure Plan site. 


Explore different suburbs in Melbourne

Try not to mentally restrict yourself to the suburb you’ve grown up in or by the type of asset you want. Many investment opportunities exist within the property market, including off-the-plan, rural and commercial property. Be open to the possibilities. Jump in your car, hail a bus or catch a train to a section of your city or area you’ve never explored and get to know it a little better.


Previous sales data

Realestate agents us property reports to show suburb price growth using monthly, yearly and 10-year comparisons. A buyers advocate take’s the time to obtain and analyse this data – it will identify market peaks and troughs, as well as dormant suburbs that are on the verge of a property price boom. Check out some of the below real estate data providers for more info. 


Go for second best

Often, the most popular suburbs have already experienced a price peak and boom, and it could be another seven to 10 years before they achieve a similar cycle. If you invest in these suburbs, you could be paying top dollar for a slow return compared with a less popular suburb.

So, when looking for a suburb to invest in, go for the next best option – one that’s similarly priced. Chances are, you’ll be buying into a suburb that has yet to boom and will provide you with the fruits of that return.


Location, Location, Location

If you’re looking to invest in a house or unit, consider the market impact of surrounding developments, such as new housing estates and high-rise constructions. Generally, the more properties available for sale in a suburb, the more diluted the return on your investment. A buyers advocate will have in depth knowledge with what is going on around your suburb.


Buy around hot suburb’s

There always a suburbs that everyone wants to live in.In the West of Melbroune it’s Williams town, in the South East of Melbroune It’s Brighton.  These types of suburbs have the best demand and highest growth when it comes to real estate. It’s natural for buyers and tenants to be priced out of these suburbs and default to a neighbouring area transferring the success of the hot suburbs to it’s neighbours. Check out our article on ‘the next hot spot growth areas.


Value you can add, on the cheap.

Most real estate buyers stay away from property that may need a coat of paint, new garden or even a light renovation. For the smart investor, this is as easy as picking low hanging fruit.


Large land allotment

Every one knows the value of real estate lies within the land as the building itself depreciates to nothing through ware and tare. A skilled investors will look for property that has sub-division potential because this gives investors options such as positive gearing or cashing out through selling part of the property.


Other Factors To Consider

Research

It is easy to look at the term research and determine that researching an area is all that is required for lucrative property investments; however the word is used much more broadly. Successful property investors research every element of their purchase. They consider the information contained in articles, blogs and in property magazines to make informed decision about the property landscape. They pay attention to the finer details of the market by delving into the world of interior design and looking at the products of renowned landscape gardeners. Property investors with a successful portfolio educate themselves on the needs of the market they are tyring to appeal to. They recognise that they are creating a service for a customer and know how to tap into resources that will increase their property’s appeal.


Keeping Up With the Times

The property market moves quickly, and no one appreciates this more than smart property investors. The most successful investors constantly keep their investments in mind and regularly assess how they are doing, what should change, and how are they currently positioned compared with their long-term goals. There often comes a time when investors realise that their investment potential is under developed and they devise strategic plans to get them on track. Reorganising land, or adding additional dwellings, has increased in popularity with the increase of professional property development managers. Investors hire property development managers to supervise their projects, and their expertise helps achieve goals within budget and on time. Successful property developers recognise that it takes a village to build a profitable village.


Highs and Lows

The Australian Property market is notorious for having very high highs followed by times of unease. Successful property developers anticipate changes in the property climate and recognise the importance of assessing their investments and determining which ones to hold onto through the more difficult times. However, their research and assessments also uncover when it is time to let go of a particular property. The difference between an investor and a wise investor is their ability to expect instability and know how to handle themselves at all times.


Negotiation Skills

It may come as a surprise that not all property investors are skilled negotiators. Of course many have picked up a trick or two along the way, but more often than not they have considered accessing external support. Professional buyer’s advocates are skilled negotiators, trained to know how to achieve a property purchase for the lowest possible price and with the most advantageous set of conditions. Utilising the support of a buyer’s agent helps position investors to maximise the value of their acquisition.

For an obligation-free conversation, contact Wise Realestate Advice on 1300 009 473 to discuss how their professional property development managers and buyer advocates can turn your property goals into property development success.


Common Mistakes Investors Make

Counting on low interest rates

Currently in Australia, we have some of the lowest interest rates we’ve seen in years, if not decades. Variable rates are currently around 5%, and fixed rates can be found at the lower than 5% mark. In order to secure a larger loan, and pay mortage debts quicker, investors are using the incredibly low interest rates to their advantage. This can come at a cost though.

Often, investors are too reliant on low interest rates, without factoring in that the rates are likely to rise. The historic average for interest rates is that of around 7.5-8%. If you are currently paying a 5% variable, you could potential have to jump a huge 50% on your current repayments. Relying on currently interest rates could mean you are over extending yourself financially in the future.

My advice is to take advantage of low interest rates, but to stress test yourself and see how you could financially handle a 8% interest rate. This will ensure you know you can afford you investment now, and in the future.

 


Not having a clear strategy on your investment

Of course investing in real estate can be a fantastic way to cushion your wallet and make a clear path for a comfortable lifestyle. But not having a clear strategy, can make your property work against you.

Countless times, I have seen investors starry-eyed about the potential a property has, and how it’s going to make them lots of money. They jump in too quickly without realizing all investments come with risks and potential issues. Imagine this scenario; there’s a huge development opportunity. It’s a subdivision, and once completed, will generate several hundreds of thousands of dollars in instantaneous equity. The investor is so consumed by the dollar signs they can see in their eyes, that they over stretch themselves to be able to finance the development – even remortgaging their own home.

The project puts stress on their finances, relationships and even their sleep at night because they are so worried about money. While this might be a good, or even great investment opportunity, it mightn’t be worth the pressure it puts on them and their personal situation. There are better ways to invest, and making a clear and honest picture of where you currently stand financially and where you hope to be in 5,10 or 20 years will help you to develop wealth, without sacrificing your current lifestyle. Without this strategy, you are gambling, as it is near impossible to make clever financial decisions when you’ve no idea if this opportunity will lead you closer to your goal.

 


Buying out of fear 

I’ve noticed a trend of investors buying out of fear that they will miss a rare and incredibly profitable opportunity. There are certain suburbs in Melbourne, that are becoming more and more overheated. People are effectively paying too much for a property because of this urgency to buy essentially anything to get in the market.

They are going from looking for a positively geared two bedroom apartment that suits their investment strategy, to looking for anything they can grab at any cost because the supply and demand imbalance has them looking like a deer in headlights. It is crucial at times like this, to remember your rules and stick to your strategy in order to stay focused on what you are looking for.

If the market in one area is too over heated, shift your focus and look somewhere else. With hundreds of suburbs in Melbourne to choose from, there are always opportunities out there waiting for you to make some money from!


Dont Get Stuck With Underperforming Property

Dont get stuck with under preforming propertyMany of us may question, what is an underperforming property? An underperforming property can be considered if it doesn’t meet the goal and expectations that you have set, or the property value has not been growing with the median price of Melbourne suburbs. Possible reasons for this could be:

 

  • Buying and investing in an older property, and then finding out it will cost a lot to repair and renovate.
  • Investing in high density apartment areas, and then other apartment buildings being built in closer areas, thus affecting its value.
  • Paying more for a property than expected and the property value not increasing.
  • Buying a land package or a property in new estates where it has a large volume of empty block, thus reducing the shortage factor.
  • Buying in the wrong location for capital growth.
  • Buying properties in hotspots during a boom period, but then dropping dramatically.

 

What should we do, wait or sell?

People are often questioning what they should do, whether that is to sell the property and cut losses now, or to hold on to the property and have faith that it will grow. It could be that in years to come the property will increase in value over time, or it could be a better idea to sell the property and invest in something else. Consider asking yourself the following questions:

  • Should I sell my investment and put the money into another property, even though if it results in a loss?
  • Is it predicted that capital growth could occur in the next few years? Or will improvements increase the possibility of growth.
  • Is it time to sell the property? For example, if the housing market is plateauing out, it might be a good idea to wait. However, the longer you hold onto your low-quality property, the more it could cost you.
  • What does the future look like in terms of major development and infrastructure in the local areas? What happens to the prices of properties in this area?

 

In order to answer the questions, it would be a smart idea to consult a few experts such as a mortgage broker, financial planner, accountant or a banker. They will inform you with the costs of buying a property in the first place. Consider taking on a buyer’s advocate, where they able to tell you what the current market value for the property is, and whether it is a suitable option for your investment strategy.

 

Seeking Professional Support

Selling a property in some cases can be an easy decision, however in other cases it might be a conundrum for an individual. Regardless of which side of the fence you sit on, it’s important to seek out professional help from your accountant, for your tax position. Your mortgage broker or banker can advise you on your current loan structure, and the effects it could potential have.

Wise Real Estate Advice, Mark Ribarsky, can also provide expert opinions on the condition of the property and the current market value of a property. Lastly, they can give advice on whether to sell the property or to invest in something else.