Where would you buy? Tips from top investors

If you asked 10 successful investors ‘where would you buy?’, you will probably get 10 different answers. There are a number of reasons why this might be the case – from the metrics used, to their long term strategy, their investment expectations and/or their personal circumstances.

I decided to gather some thoughts and strategies from a trusted a buyer’s agent and two of our investor clients, with the aim of not only getting some insight into their portfolios and buying strategy but also understanding the underlying drivers when it comes to pulling (or not pulling) the trigger on a potential purchase.

I started with Natalija Tanevska, who is the managing director of Buyhub. As location is a popular starting point when investors are looking to purchase a new property, I asked Natalija how to go about picking an area or location.

Her response:

“Before deciding on which area to buy your investment in, it’s important to consider factors such as: how long will I hold the property for? Is capital growth priority over rental yield? And, should I consider existing dwellings or brand-new developments? Once you’re clear on the above, you can put a strategy in place to ensure you target suburbs with capital growth potential, quality tenants and proximity to local amenities.

The first step is to identify suburbs with low density. This means less turnover and higher demand. Secondly, buy in a suburb that has great schools, both primary and high school. More often than not, my clients need to buy a property that’s within a certain school zone, so their children will be eligible to enrol when the time comes. Thirdly, focus on areas that have future infrastructure as this will drive demand.

A great way to start is by reading about the up-and-coming Sydney Metro. This project is adding 66 kilometres of new train line and a train every 4 minutes in peak. This is exciting, however, it’s still very important to do your research as there are only certain parts along this route that we suggest our clients buy in.”

As choosing the location of a property is only part of the equation, I was curious to know what other factors our sophisticated investor clients considered when growing their portfolios.

First up are Jeanette and Max. A husband and wife investor team that have built themselves a portfolio of 14 investment properties. These properties are located across NSW, Vic, SA and QLD in a range of suburbs, including Castle Hill, Cambridge Park, Goulburn, Wodonga, Mill Park, Elizabeth East, Huntfield Heights, Mount Warren Park, Bray Park, Morayfield and Edens Landing.

Given the wide selection of states and suburbs, my first question was: Why did you choose these properties?

Jeanette’s response:

Castle Hill was our first attempt about 15 years ago. It was with Defence Housing Australia and had huge fees but guaranteed rent.  At the time we thought it was a good buy, however, it cost us a lot. Prices eventually increased and saved that one. We then bought some land in Point Cook and built a home and sold. We then joined an investor group as we always wanted to invest but were not sure where to look. 

We learnt a lot from this group, so that’s when we really got the ball rolling.

Our next property was in Elizabeth East as it was a lower price point and had good yield.  We didn’t want to put all our eggs in one basket and were concerned that if we bought just one expensive property and something went wrong, we would have problems.  Also, we were still “carrying” Castle Hill at the time and had a young family. Cash flow was very important.

Later, capital growth became the driving factor, hence Cambridge Park and Mill Park. We also wanted to reduce any land tax, hence buying in different states.

Obviously, there is a lot of information driving these decisions, so I asked what their favourite websites/resources for research were?

Jeanette’s response:

The websites I used when “shopping” were realestate.com, SQM Research, .id.com.au and as we were with the investor group we were able to get further information via pricefinders. I would also be on the phone talking to lots of agents and property managers to see what the demand was like in the area I had shortlisted  (e.g. Wodonga a three-bedroom home fit the bill, where in Bray Park a four-bedroom, two-living area). We were looking for homes that were in areas that had good economic potential and families were attracted to. Our property in Cambridge Park needed enough land so we could build a granny flat.

We are now in our consolidation phase as we want to be able to retire in the next five to seven years, if we choose.  If we were to buy something now, it would be a property next to one that we already own so that we could offload it to a potential developer when in pension phase.

For the second investor, I chose to chat with Phil Tarrant and ask about the strategy behind the SPI portfolio, which is often discussed on the podcast.

The portfolio is made up of 18 properties across Sydney, Brisbane and Melbourne, so again I asked Phil why he chose these properties and what key investment metrics influenced the decision-making?

Phil’s response:

Our strategy is based on purchasing undermarket properties with the potential for future value enhancements. This may include renovation, addition of other cash producing assets (i.e. a granny flat), opportunities to divide blocks or have the capacity to undertake small-scale development tin the future.

 
When reviewing a potential purchase, we look at the ability of the property to provide consistent and reliable returns without leaving us too out of pocket. This means we would look at the properties’ current rental yield and the yield of similar properties in the area. Once we’ve established this, we find using a cash flow tool quite useful in determining the impact of the potential purchase. Our overarching goal however is capital growth – that’s how you make money in property. That’s critical, however, if we can achieve strong capital growth, matched with solid yield, that’s the holy grail.

As with Jeanette’s strategy, there is a lot of research behind the purchases, so I also asked Phil what his favourite websites/resources were for doing his due diligence.

His response:  

As the editor of Smart Property Investment, I’m constantly speaking with industry leaders, other investors and experts who are able to provide insights into the markets they serve – so that’s also a great resource I pull from.

My final question to Phil was that if he was to buy a property in the next few months, where would it be and why?

We use a buyer’s agent to help us navigate the many different property markets across Australia. However, over the last few years, we’ve invested in a number of properties across Brisbane and we would be willing to explore opportunities there. That said, we’ll search locations that meet our strategy and objectives. I like the next “hotspot” before everyone else. 

Our property management platform incorporates the research and metrics mentioned in this article. We encourage our investors to utilise these resources in the Managed app so they see the most from their portfolio. For further information, please contact Thom Richards on 0419 330 033 or [email protected].