THE FUNDAMENTALS OF A GOOD INVESTMENT STRATEGY

Buying an investment property is one of the biggest financial decisions one might face in their lifetime. It is important to consider all factors which may affect the performance of your investment property on both a macro and micro level. While everyone will have a slightly different property strategy to suit their personal goals, ideally, you want to find a property with a mix of strong cashflow and solid capital growth. Our property research process is therefore centered around these outcomes and includes the following considerations –

Macro

Employment – The employment rate is an indication of the performance of the economy in a certain area and is a determinant of demand for housing. If the employment rate is low, more people are working, and property will be in higher demand. A working population is also better able to access finance to service a mortgage or pay rent.

Population – Population growth in an area results in an increasing need for housing, which leads to demand from a greater pool of buyers and renters. Population growth can be a result of a naturally increasing local population, migration, or regeneration and urban development.

Infrastructure – Major infrastructure can include utilities, transport and social amenities and is usually a result of strong demand and population growth in local markets. New infrastructure boosts the local economy by providing jobs, encouraging consumer expenditure, developing the community, and attracting more people to the area.

Government Policy – It is essential to keep on top of changing government policy and how it affects your investment property. Currently, low cash rates and interest rates encourage spending and investment in property as less capital is needed to service a mortgage, allowing investors to achieve strong positive cash flow. Government grants and incentives around new development in priority growth areas may influence your decision on where and what to buy, depending on your eligibility. Changes to local planning may also affect your property in a negative way, for example, zoning changes, land acquisitions, or new social precincts which could come as an unwelcome surprise to the uninformed.

Rental Yield / Vacancy Rates – To ensure strong, positive cash flow, it is essential to consider not just a property’s potential for capital growth, but also likely rental yields. By adopting the direct comparison method, one can generate an idea of the expected rental return from a property and weigh this against the costs associated with holding the property. Vacancy rates are another important factor to consider. Low vacancy rates are an indicator that the rental market is strong and demand for housing is high.

Micro

Location, location, location! – Once you have chosen an area, it is important to consider the location of the property within that area. This includes location to amenities, including transport, shopping centres, hospitals, schools, and employment centres as these are the locations where most people want to live and therefore experience the highest demand and capital growth. You must also consider unfavourable surrounding development, for example, traffic, aircraft flight paths, proposed development that might put pressure on infrastructure, proximity to different land uses, etc.

Position – The position of the property within a new development is also important to consider along with aspect, light and shadow, the slope of the land and the outlook. All these impact demand for a property when it comes to renting and buying.

Type of Build – The type of property, be it an established home, a renovator, a new house and land package, a dual occupancy home, or a townhouse, will each have varying capital growth and rental yield dynamics as well as other pros and cons. The quality and design of the home is also an important consideration for your “Buy & Hold” and exit strategy, as you want the property to be as low maintenance as possible and to appeal to the greatest pool of renters and buyers.

Qualified Developer/Builder – Not all builders and Developers are alike, and it is essential to do your own due diligence to check their qualifications and experience before signing a building contract and investing in a new development.

Land Risks – Another, often overlooked check is for risks that might be associated with the land itself, for example, land contamination, Native Title claims, State and local heritage listings, easements and encumbrances that might burden the property, exposure to natural disasters including fire, flood, landslide, erosion, scenic or biodiversity protection zones and more. These are searched on various government registers and databases together with enquiries with local councils.

At PanVest Property, we understand that this level of research and due diligence is specialised and time-consuming, so we invest heavily in this process, so you do not have to. Our Property Analyst, Ellen Nesteroff, is meticulous in this process and stands confidently behind her work, knowing that no property is put in front of a client that she would not buy herself.

 

 

DISCLAIMER – ANY INFORMATION ABOVE IS GENERAL IN NATURE AND DOES NOT ACCOUNT FOR YOUR PERSONAL FINANCES OR CIRCUMSTANCES. PROFESSIONAL ADVICE SHOULD BE SOUGHT FROM AN INDEPENDENT TAXATION OR FINANCIAL ADVISOR. PANVEST PROPERTY ARE NOT TAXATION OR FINANCIAL ADVISORS, BUT CAN REFER YOU TO INDEPENDENT TAXATION & FINANCIAL ADVISORS.

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