One of the most important decisions you can make when buying an investment property is the location. There’s a reason everyone knows the saying: location, location, location. But knowing where to buy investment property can be a challenge. Especially for first-time investors.
To help you out, Darren Walters, CEO and Founder of No1 Property Guide, has put together this article with his best tips for finding and securing the best investment properties across Australia.
Or, if you’d rather sit back and let the experts at No1 Property Guide handle it for you, fill in our simple pre-qualification form. From there one of our Investment Specialists will get in touch to discuss all of your factual investment options.
What Makes a Good Investment Property?
The short answer: strong return on investment.
At the end of the day, the goal for your investment property is to return a profit. Whether it’s directly through rental return (positive gearing) or by creating negative cash flow for greater tax benefits (negative gearing), the end result is the same. More cash in your back pocket or bank account.
The real question many investors have is “how can you tell what is going to be a good investment property?”
This is obviously a tricky question. And unless you can see the future there’s no way to guarantee a property is going to make a return. However, by looking at previous trends as well as key market indicators, experienced property investors can notice hints towards areas and localities that are likely to see a boom in the near future.
The first, and possibly biggest, indicator of a strong rental property is the positive growth in the region. You’ll want to look at areas that, in general, have had a positive growth trend over the last few years. No1 Property Guide CEO, Darren Walters, says:
“One of the key aspects I consider when finding investment properties for my clients is the historical growth trends of the region. I always look at areas that have good growth over an extended period of time. One or two years of data simply isn’t enough. I look at data for at least a 5-year period to ensure I’m doing my due diligence.”
It’s important to look at the trends of an area over an extended time, as property isn’t static. There can be dips and troughs over the years, but as long as the general trend is upwards, you can usually rest easy knowing it will continue that way.
Avoid the Latest Property Boom Locations
One thing that catches many first-time and even experienced investors off-guard is the allure of an area that is suddenly the hot topic of the news and property industry. When there’s a sudden boom in construction and the media is abuzz with the opportunities for investors and homeowners, you need to stop and ask yourself, “why is this ‘opportunity’ happening?”
In many cases, these booms are only temporary. A major event or attraction creates a mini boom that only lasts a few years. And once that event goes away, property prices and investment opportunities level back out to they were before.
It’s vital you understand why an area has suddenly become popular and work out whether it will be sustainable, or if the inevitable drop-off will occur.
Of course, if you’re a more experienced investor, taking advantage of these mini booms is a fantastic way of making a quick profit. But this is much riskier than the more stable, long-term investment options we recommend at No1 Property Guide.
Research Expected Rental Yield & Vacancy Rates
While it’s not as much fun as looking at the properties themselves, researching the average rental yields and vacancy rates of an area is a crucial component of choosing where to buy an investment property.
Vacancy rates are arguably the most important of the two. Vacancy rates are basically a percentage of the rental properties that aren’t currently filled by renters or owner-occupiers. Most popular areas and capital cities will have a vacancy rate of around 1%-2%. A lower vacancy rate means there’s a good chance your property will find a tenant easily. And there will be less competition to drive rental prices down.
However, not all areas will have a low vacancy rate, even when it’s a part of a capital city. Ensure you’re doing your research to avoid buying an investment property in an area where renters are scarce or have a lot of choices.
Of course, rental yield is also an important factor you’ll want to consider. Simply the expected rental returns you can expect from paying tenants, these figures are usually fairly easy to obtain. The good thing is they are also, generally, related to the median property price or a region. So you can easily determine whether you will have a positive or negative rental yield.
Established Areas are Popular for a Reason
It seems like common sense, but an investment property in a well-established area with good capital growth is almost always a safe bet. Areas that have consistently grown over the years are more likely to continue growing. As renters, and would-be home buyers, continue to flock to the area to live the lifestyle they want. These kinds of areas are ideal for investors looking for stable, long-term returns.
Of course, as we’ve said previously, there’s no guarantee when you’re investing. And no matter how historically strong an area is, there are always risks. At No1 Property Guide, we do our best to mitigate those risks by finding areas and locations that fit Darren’s stringent investment criteria.
If you’re interested in learning how we can help you break into the property market with an investment property, fill in our pre-qualification form. From there one of our Investment Specialists will be in touch to discuss all your factual investment options.
Choosing Your Investment Method
Along with choosing where to buy an investment property, you will also want to consider what kind of investment method will work best for you. There are 2 primary investment options we utilise at No1 Property Guide, and both have their own unique benefits.
SMSF investing is basically taking back control of your Super and investing it into an investment property for your retirement. This is a fantastic option for ensuring you have the capital to live a comfortable retirement lifestyle. However, SMSF investment properties can’t be lived in or utilised by yourself or your friends and family until you have retired.
Read more about the advantages of SMSF investing here.
Equity investing leverages the equity in your existing property to secure finance and capital to reinvest into a new property. Of course, you will need another property, or large financial asset to utilise this method. However, there are fewer restrictions compared to SMSF investing. And you’ll have more freedom to use the property as you wish.
You can read more about our tips on equity investing here.
Take the First Step on Your Investment Journey Today
Whether you’re just getting started or are looking for your next investment opportunity, knowing where to buy investment property is your first step. At No1 Property Guide, we believe you need to know all the facts to make an informed decision. Which is why our Investment Specialists work with you throughout the investment process. We’ll ensure you understand each step so you can make the decision that best fits you.
Property investment is a fantastic option to build wealth and secure your own financial freedom. If you’re ready to begin your investment journey and start building your property portfolio, fill in our pre-qualification form. Or contact our Investment Specialists. Our experienced team will walk you through all your factual options and get you onto the path to financial freedom in no time.