4 Things every smart property investor knows

It can often be difficult to filter through the enormous amounts of advice about property that you can easily find online (and off). What should you follow? What should you ignore? This can be especially challenging for first time property investors.

So here are 4 things we use (with our trusted property partner, ASPIRE Advisor Network) to help our clients buy their first, second, fifth, and tenth properties. Stay true to these and you won’t be too far off from finding some great properties.

Property Finder Tip 1: Look where the masses aren’t

Don’t listen to the so-called experts talking about hot-spots, especially if they are regional. If there are exceptional rental returns right now, I guarantee there won’t be in 3 years time once the area has been flooded with new homes.

Most of these areas have limited employment opportunities and once those opportunities are at capacity or in decline, the supply and demand of houses to people does not work in your favour.

A lot of the time when these areas hit the media it is too late. A small percentage of these may be a speculative investment however you would want to get out in the short term as once the bell curve starts going down it is very unlikely to go up again.

Key takeaway: Make sure there is sustainable, diversified employment opportunities in communities exceeding 100,000 people.

Property Finder Tip 2: Find growth areas

By 2050, the Australian government expects a population of 36 million. Where are these extra people going to live?

They won’t be spreading themselves evenly across Australia, that’s for sure.

Demographic forecasters say that South East Queensland and Melbourne will see the greatest percentage growth. Followed by Sydney and Perth.

Looking at just the macro growth influences it would be safe to say you’ll be best positioned if you are in these markets over the long term. However it is all about timing as each macro market (Capital City) cycles at different times.

Avoid getting into a market that is at the top of it’s cycle.

Then identify the micro markets (suburbs) that is attracting people. What is setting them apart from the others? We want to be investing where the population is going to grow long into the future.

Key takeaway: Don’t be afraid to invest outside your state if the facts and figures make sense.

Property Finder Tip 3: Check for rising rent

Look for areas where the population has been growing – but property prices haven’t been keeping up – over the last 3 years and the last 10 years.

Check if there’s been a steady increase in rent over this time period. This indicates that the percentage of people compared to properties is getting greater. There will come a time where the higher yields will start attracting investors and this is when you will see organic growth as there will be a swing from a buyer’s market to a seller’s market.

An example of this is if you could get a property for $400,000 4 years ago which was paying $300/week rent and today you can buy that same property for the same amount however it will bring in $400/week, it is very likely you will start seeing some growth in the not-so-distant future.

Key takeaway: Make sure you apply principles of Property Finder Tip 1 in conjunction with this one.

Property Finder Tip 4: Less is best

Look for areas with scarcity – of land and available properties. Supply and demand dictates high prices where supply is low, and the right mix of factors exist for demand to increase over time.

Just because an area is ‘growing’ does not mean that it is going to grow in capital value. If a new community has no scarcity of land then it may take quite a while to see capital growth and rental growth.

Similarly if you are looking to invest in a high density area make sure you find out what developments are in planning, have been approved to develop and those already under construction.

Compare the potential new number of dwellings that will be created with the total number of existing dwellings at the time of the last census. Then evaluate if that area can sustain that percentage increase within the planned timeframe. This part of property investing is a science.

Key takeaway:Don’t be fooled by good marketing techniques.

I’m sure you’ve realised by now that these tips are no secret. Yet the basics are often the most difficult to master – especially when you have headlines all over the news about the top suburbs to invest in.

How many other people are reading the headlines?

Cheers, Nick
P.S. Contact me if you’d like any more information about any of these tips – or would like to check in with us about an area you’re thinking of buying a property.

Photo credit: Flickr – Vince Alongi

 


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