Despite COVID-19 and speculation about the economy’s ability to recover, the 2021 property market continues to boom.
The media is full of stories about rapidly rising prices, historically low interest rates and massive rental demand. With all this media hype it’s easy to feel pressured into making quick decisions.
But it’s important to remember that these are probably the largest single investments you’ll make. Being driven by price, the developer’s collateral or a general review in Domain doesn’t do justice to the gravity of the investment you are about to make.
Property investment is a long game and getting the facts and fundamentals right from the outset can have a huge impact on the way your investment performs over the mid and long term.
There are a few key areas that have a profound influence over how our investment performs. These are the points that we consider when we screen and endorse property opportunities for our clients and we apply them to our own property investments as well. If you don’t have someone like Finvest to do this for you, here are some questions you should cover in your own research.
- Appeal for the area?
What are the key factors that attract people to the area? What does the infrastructure look like – is there easy access to shopping, public transport, leisure activities and facilities? Is it a flow-on suburb? Flow-on suburbs border areas where the prices have already taken off. Frequently a flow-on suburb has many of the same features and charm but is one stop further out and carries a lower price point. Make sure you look at public transport and make sure it extends to these outer suburbs.
- Who lives there?
Go and walk around the area, sit in a coffee shop and get a feel for the place. This is often suggested for owner-occupier purchases but it’s equally important for investment properties. Is it primarily older people or do you see lots of younger adults and families. Take special note of areas where the population is growing either through young families, new industries coming to the area or high student populations.
- What makes the property or development different?
Some new investors see development projects in the same light, but not all developments are created equal. This is especially important in high density apartment investments. As a landlord, you want to attract the best, high-quality tenants. Sure, there is currently high demand on rental property now – but it may not always be this way. Planning for a range of scenarios now means not having to worry about them later.
Ask yourself why a tenant would prefer to live in your townhouse / apartment. Is it close to universities or key employers? Is it near public transport, do the properties within the project have better amenities and standard fittings? Are there built- in retail spaces that make life easier and reduce the need to travel?
- Is there a limit to land in the area?
This is especially important for House and Land opportunities. Are there physical constraints that prevent outward expansion or can developers in the area (not just the one you are talking to) keep adding new developments and building more houses. This is really important because if there is no limit on supply, your property value will not grow at the same rate as it would if you had invested in an area where there are limited opportunities to build out. Sadly, this is a fact that many investors realise after they have bought. Don’t be one of them.
In an established area that is being “gentrified”, what constraints does the council place on density and height requirements? This can be an indication of the limit on overall supply of apartments in an area. We often find that townhouses come into their own in these suburbs. If you pick the right project and the right developer, you get land and a quality dwelling in an area where house prices are way beyond reach. This is great for capital growth, rental return and for tenants.
- Know The Numbers:
It’s critical that you know the numbers. This is where most portfolios come unstuck. What are the hidden costs of purchase? How much can you borrow and what will the property return in rent. The best way to reliably answer the last question is to get an independent rental appraisal for existing properties in a project or of equivalent apartments by the same developer. We do this for every project we endorse and every property we buy ourselves. But this only gives you part of the picture.
The best way to know not only how the opportunity stacks up but also how it looks against your own situation is to also get a depreciation report and a PIA (Personal Investment Assessment). We run PIA’s for each of our clients as these give a comprehensive view of how each specific investment sits within each person’s financial situation and takes into account the cashflow of the property, the investor’s ability to service the loan and the key financials regarding repayments, tax impacts, etc.
While this all sounds technical, it is important. It can make (or cost) you thousands over the long term – and if done correctly make investing in property an exciting and rewarding way to build wealth and financial independence. If you would like to learn more about property investment skills and techniques, visit our FREE online academy.
