As a first time investor it can be easy to get caught up in the ‘hotspot’ hype and bombarded with suburb stats. Let me share my tips to finding the perfect location.
Because you’re new to the world of property investing it’s hard to filter down the abundant location choices let alone find a location and property that suits your needs.
There’s no doubt that some of the higher risk locations can provide greater returns however it’s probably best as a first timer to focus on a location that will pay off as a solid long-term hold rather than as a quick fix.
Property hotspots can also be interesting to read about but by the time you’ve started looking for properties in that location, chances are everyone else has too. Property prices can spike when hotspot reports are released so it might be best to take note but to wait until that market normalises again.
It can also be tempting to buy close to home because, well, let’s face it, it’s easy to keep a close eye on any new properties up for sale and easy to monitor once rented, but is this the best strategy?
The beauty of property investing is that the expression ‘one size fits all’ never applies. Every property investor is different and the same applies for first timers. Cash flow can vary; so can risk threshold, geographical accessibility and renovation skill sets. So, before you choose a location jot down these limitations and opportunities, you’ll find it will help formulate your strategy, and make location hunting that bit easier.
Once you’ve started shaping your strategy, you should also ask yourself what your financial limits are? This usually starts with obtaining finance pre-approval prior to searching.
Knowing your limits before property hunting can prevent time wasting – not only your time but also the agent’s time. What’s the point in looking at a location you simply can’t afford?
This is where an expert can help enormously. This is the stage where first timers often become unstuck and start to guess figures without having any real world knowledge.
It’s also crucial to know what rental income you can achieve because the rental income of a property will be considered by the lender to determine your borrowing capacity. So breaking it down to the basics, what lenders want to know is if you can you afford to pay your mortgage.
Okay, so with numbers crunched and finance pre-approval achieved you know what you can afford. So the question is ‘what should you consider when hunting for the perfect location?’ I’ll let you in on six important ones.
- Keep your options open. Personally, I’m a fan of keeping my options open when it comes to location, though it’s good to have a top 5 suburb list based on what you can afford and what you desire because this certainly helps narrow down your search.
This top 5 list will also help you hunt for a truly independent buyers’ agent with daily on-the-ground knowledge of these areas. Tip: if the buyers’ agent is a member of the Real Estate Buyers Agent Association of Australia you can be guaranteed that he or she is independent, which means they’re only working for you, the buyer, not the seller.
Talking to these local independent experts about where different suburbs are in the property cycle is also important because successful investment in part is about timing.
- Don’t be afraid to buy interstate, or a good distance from home. Unless you can renovate, build or add value to a property using your own hands and trade skills then location doesn’t have to be restricted to a place near home. This is your first investment so make it a good one and set up the right network of people around you to help you get there because let’s face it, most first time investors do have day jobs and can’t be gallivanting around the country looking through properties, suburbs and talking to agents every week.
- Stick to your limits. Often buyers start looking at property and find that they keep nudging up their budget to get something bigger and better, or they lose hope due to one or two unsuccessful offers. You need to be aware that in moving markets if you keep missing property after property, then maybe you are chasing a bargain that doesn’t exist. Do whatever you need to do to stick to your strategy, even if it means refining your search dollar figure on the real estate websites or some other novel way to remind you of your limit, do whatever works!
- Look for buyer demand. When deciding on a location, buyers often look at factors including employment opportunities, infrastructure spending and proximity to public transport, schools and amenity. It might help if you give your locations a rating out of 10 for each of these criteria.
- Consider the demographics. You don’t want to buy a house in an area that only attracts a small slice of the rental market, and the sale market for that matter.
You also have to consider how long you’ll be waiting for a suburb to gentrify and for its demographic to change. Sure the suburb has the potential down the track to see big changes but is there perhaps another suburb nearby that is already showing positive signs of change, that historically has greater demand and rents, and where prices are only a fraction higher?
- The want factor. For me, supply and demand is the top influencing factor. I like to call it the want factor. I like to buy in locations where people want to live. Strong buyer demand should help give a valuer confidence when it comes time to re-value your investment property in the future.
If you haven’t noticed, people like living, visiting and renting in similar places. Increasingly, pressure is being placed on our property supply in urban centres, this can influence strong and consistent capital growth. So established areas with a solid history of demand and consequently price growth are the areas I like to buy in.
Some food for thought on your first investor journey, time to start hunting!
Zoran Solano, Senior Buyers Agent @ Hot Property Buyers Agency