Throw a dart at the map of Australia and where it lands buy that property, history will tell you ‘wait long enough and it will increase in value’. Since we won’t live forever and we do intend to retire, we need to be a bit more precise in our choice of property.
The one thing i have learnt when looking at making any decision you need to have a plan. You need to know what you want to achieve (set criteria), and you need to stick to the plan (no emotion).
Below are 8 criteria that over a long period of time have proved successful in choosing the right investment property. (All property consists of two elements, the building and the land it sits on. So when we research we must first consider the land as a priority since the building will depreciate over time. The land is the key, (location & size) and we are able to concentrate our selection on the land (area) before we look at the actual individual property. )
Let me share them with you…
1Capital Growth Rate, we need to look at areas that have long term CG. Some areas have spurts in growth and don’t show consistency. Remember we want long term growth averaging greater than 7.5%. These criteria can be researched through both government and private agencies.
2Population Growth, an old saying in real estate is ‘location, location, location’. Investors are looking for people, people, people… Simple supply and demand. Investors want CG through demand (increase in population) and tenants (again through increase in population). Also able to be thoroughly researched via private and government agencies.
3Residential Vacancy Rate, ask a potential investor what their biggest fear and you can bet finding a tenant will be right up there. Yet, choose the right area and it’s one of the least worries. Again, researchable through various agencies.
4Infrastructure, Established and Planned. It’s also important to look at both government as well as privately funded projects. If Westfields are spending $400,000,000.00 on a shopping centre in the area, you can bet they’ll be doing a reasonable amount of research. Possibly more than an investor spending $400,000.00.
5Median Property Price, very important criteria when we consider CG. It is a very popular statistic effused by jornalists, not always understood by readers. Consider it the middle price, imagine there will be an equal number of properties for sale higer in price as cheaper in price of the Median Price. When investing with a budget of say $400,000.00, the savey investor will want to seek a MPP area of no greater than $450,000.00. Investing in areas with higher MPP’s will reduce their prospects of CG.
6Rental Yield, we are now starting to focus in on the type of property we are looking for. The investor will have narrowed the search area and now will be close to selecting a property. Since we have commitments,( interest and property costs) to pay annually, rental yield is very important. A critical selection criteria.
7Tax Effectiveness, no good doing all the research and then wasting the enormous benefit given to the investor by the Government thru Negative Gearing of depreciation… The toughest time for most investors, money wise is in the first few years. Using depreciation on new property can be the difference of being able to buy a great property rather than an ordinary property.
8Exit Strategy, an often over looked criteria. Life has a way of throwing up challenges and sometimes we may have to sell our investment. If we have only looked at purely investment property such as ‘defense force housing or guaranteed return properties etc’ we will be limiting our selling opportunities. Re-selling to the investment market which is only interested in bargains, and only 20% of the market is very limiting.
An appendix to this criteria is the ‘little luxuries policy’, your ability to attract a tenant and keep them while also attracting a potential buyer if necessary, increase when adding the little luxuries at purchase.
When looking at increasing your opportunity to invest well, visit the Warehouse and ASK ME how??