There is one real estate adage that gets pounded into our minds time and again.
It’s almost insidious. You can barely look at a real estate article or watch a renovation show without it mentioning the three most important elements of successful property investment are, “Location, location, location!”
It’s high time for an update.
Now before I’m bombarded by emails from all and sundry explaining why I’m wrong to question the importance of location, I want to say right up front that, yes, location is a key element of investment.
My problem is there’s an undertone to this jocular little catchphrase – and it’s that nothing else matters. As long as you pick the right location, you’ll make money.
Well that is patently incorrect, and here’s why.
Redefining the Golden Rule
If you rely solely on location you will, at the very least, be leaving money on the table. At worst, you could find yourself with a loss.
While location continues to be a key beam in supporting rising values and strong rental demand, the first hurdle is agreeing on what actually is the best location for investment.
For example, at Aspire, our advisors analyse more predictive criteria than the usual metrics. Our team spot those areas where resident demographics and population densities are working to build demand, price growth and liquidity in a location over the long term. This varies from other advisors who’ll simply adopt more common measures such as median house price growth and sales volumes.
But there’s another practice that gets too little attention under the old rules.
We need to stop focussing on just location and start factoring in position and property selection.
OK, so “Location, position, property selection,” isn’t as memorably catchy, but you should burn that adage into your brain.
For mine, these are among the most overlooked elements of the ‘golden rule’ equation. You may uncover a prime address – a location set to see excellent growth – however if you choose the wrong property in the wrong spot, all that work will be for nought.
Position
I want to know where a property sits in a suburb and what land uses surround it.
For example, if you’ve chosen an asset that fronts an extremely busy road in the industrial wasteland portion of a suburb, you’ll soon find few renters will want to live there, and even fewer purchasers will want to eventually buy it off you.
Look for assets that have easy access to services, facilities, transport routes and other options such as parks.
By checking your asset has the right position, you avoid negating all the benefits created by location.
Property type
The third element is choosing the right type of property for your location, and in many respects, this is your most important decision.
Again, even if you’ve selected a suburb which will achieve excellent growth over a price cycle or two, but you’ve bought the wrong type of property, there’ll be limited demand from local tenants and buyers.
The key here is understanding the demographics of the resident population in your hotspot suburb. If all measures indicate most local households comprise families where the breadwinners are well-educated, professionals with two-incomes and two-cars, don’t select an old renovator with a high maintenance yard and a single uncovered car space as your set-and-forget asset.
Instead, think hard about who’ll want to live in your suburb of choice and what their requirements are of a home. That way, you can ensure there is competition for your property which will boost both its value and rent prospects.
To drill down even further, don’t immediately believe you can simply buy something new and that will take care of the problems.
For example, we often help clients secure townhouses in quality locations, but not every complex offers the same potential as an investment. Badly designed, poorly constructed properties will do their owners no favours. You need good quality, thoughtfully constructed and laid out assets to provide longevity of investment success. Unearthing those begins with selecting projects where developers and builders have a track record of producing and excellent product.
When someone says, “Buy in the right location and you can’t go wrong,” they’re really only half right.
Smart property investment begins with location but ends with position and asset selection. These elements can work in unison to create a stellar result but identifying the right balance can be tricky for most average Aussie investors.
Instead, ask a well-qualified, independent property advisor who can guide you through the due diligence process and put you into a wealth-building portfolio.
Working together with an ASPIRE Property Advisor Network Accredited Advisor who is a QPIA ® (Qualified Property Investment Advisors), will ensure you analyse these and many other key metrics. Working with a professional QPIA ® will assist you in buying the right investment for your first step or next step into property investment. www.aspirenetwork.com.au