7 principles for finding the best property investment locations
When it comes to property investment, location is an important consideration. However, many people believe that ‘good location’ is a one-size-fits-all proposition – and we’d disagree. The best location for your property investment might be quite different to the best location for a friend’s property investment. We’ve put together seven principles that will help you figure out the best places to invest in.
The most important factor to consider is the maximum amount that you can comfortably afford to invest. You’ll need to consider not just the repayments on the loan, but current and potential future interest rates, property maintenance costs, and your weekly or monthly budget. These can be difficult calculations for some – if you’re having trouble figuring out how much you can afford to spend on an investment property, come and talk to us to get some assistance.
Infrastructure (existing and planned) is highly important in property investment, as it helps to improve your capital gains on the investment – and also makes it more valuable as a rental property. Consider the availability of things like shops, schools, universities, airports, major roads, and public transport. You might need to visit the local council website or office to get information about infrastructure developments that are planned for the next few years.
Ask yourself, “Would I want to live in this suburb? Why/why not?” Keep in mind, also, that your preferences might not mesh with those of the general population. Typically, suburbs that have schools, good-sized shopping centres, cafes and parks within easy driving or walking distance tend to be the more popular.
Low rental numbers
Areas with low renter to owner-occupier ratios tend to be most in demand. You don’t want to be competing in a flooded rental market, as this will significantly lower the weekly rent that you can ask for the property. What’s more, a higher rate of owner-occupiers tends to improve property prices in the area.
Search for areas that haven’t had much in the way of economic growth over the last 5-10 years – especially those with a number of infrastructure developments in progress or on the cards. These are more likely to possess pent-up demand that can increase your returns significantly. For example, a suburb with a growth rate of 2% with surrounding suburbs closer to 5%, will probably be a good option.
Talk to people in the area to discover where the majority of people are working – are they employed nearby, or are they travelling a long way to get to work? This will give you an idea of the local industry, and how likely it is that people would rent or buy in the area in order to be close to work.
Are there any risk factors to be aware of? For example, consider some towns that have experienced huge economic growth and property price increases due to mining booms in the area – but once the price of its main product fell on the international market, most employees were laid off and property prices fell dramatically. A more common scenario in metropolitan areas is a large percentage of home owners beginning to rent out their homes, increasing the number of renters, which can decrease the economic profile of a suburb and decrease rental demand.
The best property investment locations often aren’t the ones being talked about ad nauseam in investor circles – those were generally the best locations 2-3 years ago! But if you follow the principles above, you substantially improve your chances of making an investment that will provide you with the best possible outcomes.