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When investing in real estate the three key points we focus on are buying the right type of asset, buying in the right area and buying at the right price.

Sounds easy, doesn’t it? But what does ‘right’ mean?

In this article we share the basics of making good property investment choices. While the tips here don’t factor in the small details, nuances and micro-factors that come with decades of experience, they are a great place to start.

What is the right asset for property investment?

The asset class that has proven time and time again to be the best bang for buck is a three-bedroom two-bathroom townhouse within 10 to 15km of the CBD.

This type of asset is a hybrid between a house and an apartment. It has some land content but not too much – so the prices are still reasonable – and has fewer outgoings than an apartment, giving you a better return on your investment.

Top tip: Choose the wrong asset type, and even if you’re buying in the right area, your investment won’t grow in value, nor will your rental return increase reasonably over time.

Where is the right area to buy an investment property?

Solid infrastructure and lifestyle activities attract owners and tenants. Look for good public transport, bike paths, supermarkets, restaurants, cafés and entertainment close by. These are important factors in creating capital growth and an increasing rental return.

It helps to think about your investment property as someone’s home. Drive around the area. Does it have attractions you would want to live near?

Avoid areas with limited or ‘future’ infrastructure

If you’re thinking about buying an asset like a house be aware that a house in a new estate or an isolated area is unlikely to have the infrastructure to support demand by tenants and owners. There are other considerations too. For example, if the developers are still supplying more stock from the neighbouring land banks they own it will take many years before values rise in these areas too.

We also recommend that investors don’t buy in an area that has future infrastructure promises as they may not come to fruition.

Hot in the city

You can still buy apartments in an area close to the CBD which will create capital growth and have an increasing rental return. The most lucrative part of Melbourne to be buying these types of properties in is the inner north of Melbourne. This area speaks lifestyle and accessibility.

A 1 or 2 bed apartment, even in a popular suburb such as Richmond or South Yarra, will help you achieve your financial goals, but at a much slower rate than the alternatives. Choose the right asset but in the wrong area and you will also struggle to make the purchase a positive financial experience.

Top tip: If values don’t rise then neither does rent. If your rent and capital are not growing you’re left holding an asset with no real financial reward for your efforts. Worse still, you could end up without a tenant.

Townhouse case study

In 2006 we bought our first townhouse for a client for $321,000 in Brunswick. The right asset, in the right location.  We bought it when it was a four or five years old from an owner who purchased it off the plan for $368,000. Don’t get me started on buying off the plan! That’s another story for another day.

Today, these properties are worth in the vicinity of $1.1-1.2 million. A while before Covid hit we were still buying these assets in this part of Melbourne for $850-900,000 and they were leasing for $750 per week which is a very small hold cost for a landlord after rent and outgoings are paid. Our Property Investment Analysis (PIA) shows this.

At the same time, to achieve the same rental return in other areas of inner Melbourne, you would need to be spending $1.4-1.5 million dollars on a townhouse. Bayside Elwood is a perfect example of this.

What’s the right price?

Every time you buy a property for investment you get one opportunity to get it right. If you don’t get it right, that opportunity has gone and it’s a few years before you get the chance again.

A lot of people don’t get the chance again and even if they do they avoid real estate the next time because there previous experience was a negative wasted opportunity.

There’s no one answer when it comes to understanding the price of an investment propertly. Just because the market is rising doesn’t mean it happens for every property. There are always micro markets in operation which means some properties do better than others.

Spend money to make money

The simple rule of thumb is that the more you spend when you’re investing in property the more money you will make.

Yet it’s not that simple.

You wouldn’t buy a $5 million house to rent as there aren’t many tenants available at this level and you’ve put all your eggs in one basket. You’ll achieve growth but you won’t earn much of a rental return plus you’ll find it hard to liquidate if you need some cash.

You wouldn’t buy multiple $500,000 apartments because you’ll receive rent but your principal won’t grow as well as it could elsewhere.

Instead, it’s important to find a property that represents a balance of indoor and outdoor space, with some form of courtyard, proximity to infrastructure such as schools, shops, transport, cafes bars restaurants, gyms, parklands and all the wonderful things people want to live near.

Seek the right advice

Advice is cheap, until it starts to cost you money! Get advice from the wrong source and you could easily find you’ve bought something that’s overpriced and under performs.

In our 18 years as a buyer advocate we’ve seen far too many clients who have come to us after a negative experience based on the wrong advice.

When buying investment property treat the advice you are given with a grain of salt. Build a relationship with a buyer advocate who is prepared to be accountable for their advice. Work with someone who is genuinely interested in how the investment will perform after you’ve purchased.

Do your own research and make sure you know what you’re looking for. Team up with a buyers’ advocate (accountable by definition) who will actively work with you and for you to achieve your financial goals.

Take it to the next level

Buying property is just like baking a cake. You need to get the ingredients right for it to rise. If you’re not an expert baker, then consider finding one.

Nothing makes us happier than calling a client 6-12 months after their purchase and providing them with comparable sales data that convincingly shows them the growth their property has achieved since they purchased through us.

We’re obligated and accountable and the outcome of your purchase means so much to us.

Get in touch for a chat and discover how your investment in our buyers advocate services will take your property investments to a new level.