For an investor, finding the ideal property requires researching a wide range of factors. These include available inventory as well as economic and demographic data. It’s also important to have an eye on future developments that may affect the property value. Below are three tips to help you find the right investment property.
Research quality sources
In Australia, there are many ways to find data on a certain property. Keep in mind that looking ahead is key. Rather than looking at what has happened in a market in the past, look forward to the leading indicators that can predict what’s going to happen in that market in the future.
Available resources provide useful information when searching for a good investment property. For example, Residex provides you a free suburb report by just entering the suburb name or postcode. The report provides a breakdown of the property median values, how many people reside in that area, and the total number of properties. You’re also given demographic information such as languages spoken.
You may also see information by street, such as which ones have the most expensive homes. The report gives you the data you need for a proper market analysis of the activity in the area, the number of sales, how long properties stayed on the market, etc.
Consider these factors
Supply and demand: These are extremely important indicators to consider as you research various areas. You should also consider what the future may bring to an area. Are there new projects planned? Is there something happening like a new business in the area that will hire a lot of people? How will that affect supply and demand?
Make certain that there is not an oversupply of property even if it is in a good area. It will be difficult to see capital growth if the market is saturated with the property.
Economic: Look closely at demographics so that you know the areas of higher income and the density of the population centers. The characteristics of the neighborhood are also important considerations.
Employment growth and finance trends: Wherever there is employment growth, there will be wage growth, thus making more property affordable for buyers. Real estate professionals believe that people buy houses based on whether they can afford it and are willing to pay a premium to own it.
This is the type of area that should be on the top of the list. Also, some areas stir more confidence if they are up and coming neighborhoods with thriving businesses. If a person is confident in their job, they are more likely to purchase.
Property prices and growing capital: Pick properties that actually outperform others in the same area. You can learn which properties are the best prospects for this by again looking at the data you can glean from the aforementioned sources and even the Australian census that’s taken every five years.
If possible, you should also drive around, go to open houses, look at the properties and the area to get a feel for the demographics.
Study the economic data
Once again, supply and demand are key. Areas, where demand is greater than supply, are the most desirable, but you need good market data to get this information. It’s wise to be cautious of accepting data on face value without giving it thought.
A good data point today can disappear overnight. A 10 percent vacancy rate in an apartment building can turn into a much higher percentage almost overnight if affected by the negative circumstances. Looking ahead is always important when studying the suitability of an area. Key data to look at include:
- Vacancy rate
- Rental cash flow
- Auction clearance rates
- Days on the market
- Demand to supply ratio
Finally, talk to people on the ground in the area. Ask about factors such as the quality of life in the neighborhood, crime statistics, and amenities available. Items such as these are not always reflected in online data, but they have a dramatic impact on the future value of a property.
While in some cases, apartment buildings may be a good investment, you will be saddled with the task of managing rental applications, tenants, and rent collection. There are online tools that are very helpful in managing these more tedious tasks. While you are going through the due diligence phase of locating and purchasing, it would be wise to have your investment capital someplace where it is gaining optimal returns such as a 6-month term deposit.
This is also a good idea if you own a rental property and have to keep rental and security deposits in escrow. Depositing the money in an interest-bearing account makes good business sense.