- Look for areas experiencing gentrification
- Look at “bridesmaid suburbs”
- Look for upgrades to infrastructure
- Make sure the property is investment grade
There are over 15,000 suburbs in Australia and at any one point in time, there is around 600,000 house and unit sales. This can really be a minefield for the inexperienced buyer and could lead to a very costly mistake if you cannot navigate through this.
If you’re looking to buy an investment property, you will likely have some ambitious long-term lifestyle goals you want to achieve and if you want to make money over the long term you can achieve these goals using property.
That’s if you buy an investment grade property in a good growth area.
That sounds so easy, right? But not every property for sale will make a good investment, in fact only around four per cent of properties for sale can be classed as an ‘investment grade property”. So, how do you find those good growth areas and how do you identify an investment grade property?
Look for areas experiencing gentrification
In a nutshell, gentrification happens when people with higher incomes move into a suburb that was previously considered of lower socio-economic standards. When this occurs, the average income in the suburb rises, the demand for properties in this suburb also rises.
This means that where the money lies the new shops and restaurants will follow, as well as new child care centres – opening to meet the new demand. This is when people start to find the area more desirable which in turn raises the prices of properties in the suburb.
Characteristics of gentrification:
- New trendy bars, restaurants and cafés, alongside new shops and supermarkets opening,
- Young professionals and families moving into the area,
- A good community and family vibe (carnivals, markets, events),
- Older homes being renovated or knocked down and rebuilt,
- Government planned and committed infrastructure spending,
- New transport links like train stations, new roads, and access points like bridges and tunnels, and
- Low vacancy rates.
Look at “bridesmaid suburbs”
A “bridesmaid suburb” is the suburb neighbouring one which has experienced strong growth. When suburbs experience high growth, the property prices will increase considerably which results in some buyers being priced out of the suburb. If they cannot afford their favourite suburb it is likely that buyers will consider a neighbouring suburb as the next best thing.
This is why growth typically ripples outwards. To find a “bridesmaid”, look for suburbs that are cheaper than their neighbours, but with similar infrastructure and amenities, as property prices are likely to catch up.
Upgrades to infrastructure
Areas that have planned and committed Government spending as well as large infrastructure projects, are likely to experience strong growth in the future. You can find this information quite easily on Government and local council websites.
When the ‘liveability’ of the suburb improves at the completion of the projects, this will increase the demand for properties in the area. The supply and demand imbalance will push up property prices in the area.
If there are new roads being built in the area, this will improve the accessibility to the area as well as the travel times to work for people living there which will attract more buyers who live further afield.
What is an investment grade property?
Experts will talk about properties that make excellent investment opportunities as ‘investment grade’ which ultimately means these properties have attributes that allow for wealth creation. In comparison to other properties, investment grade properties will have the potential for capital growth. Investment grade properties may also have other excellent attributes compared with other properties on the market such as scarcity, desirability, location, affordability, or size/type.
An investment grade property should have the following attributes:
Potential for capital growth: The capital growth of a property will ultimately create wealth. Look for properties in areas which have the potential for capital growth, and are not at the peak of their cycle. These areas will have multiple growth drivers (such as multiple industries for employment), as well as new schools, hospitals, shopping precincts.
Also look at Government spending on infrastructure such as new roads, highways, bridges or even sporting stadiums. All these infrastructure improvements will increase the liveability of the location and the desirability for migration into the location which will ultimately push the demand higher than supply and create the capital growth you are looking for.
Scarcity: You want your property to stand out so that it is worth more when it comes time to re-value or sell. This is because you want the demand for your property to outweigh the supply which will result in getting the top dollar for your property.
For this reason, look to buy apartments or townhouses in smaller complexes and steer away from houses in housing developments that often have ‘cookie cutter’ houses.
Properties located in areas where land is scarce will make a good investment and push the prices up.
Convenience: Look for properties that are in a good proximity to local amenities and transport.
Access to public transport, schools, shops, and restaurants as well as located on a quiet leafy street away from the busy roads will make your property more appealing to potential tenants or future buyers.
Quality: Look at the properties individual features and ensure you are paying the right price for the quality of the asset you are purchasing.
It is OK to buy a ‘renovators dream’ but ensure you pay the right price and are not paying a similar price to a neighbouring property that already has all the top specs, as this will only limit the profit to be made on the property.
Gearing: For an investment grade property, you would need to ensure the gearing of the property is right for your strategy.
Positively geared properties will essentially pay for themselves and you shouldn’t need to be contributing your own hard- earned cash to cover the costs of holding the property.
Negative gearing can be the right strategy for some investors who are targeting strong capital growth only (for example, properties in the middle of capital cities are likely to be negatively geared but will have excellent returns in the long term) so it is important that you purchase a property that has the right gearing strategy for you.
