What are the pros and cons of investing in a commercial property?
What are the pros and cons of investing in a commercial property? Read on to learn more. ...
It’s easy for an investor to get caught up in hotspot hype and find yourself bombarded with suburb statistics, but it’s still possible to find the right location.
Blogger: Zoran Solano, buyer's agent, Hot Property Specialists Buyers Agency
When you’re new to the world of property investing it’s hard to filter through the abundant location choices, let alone find a location and a property that suit your needs.
There’s no doubt some of the higher-risk locations can provide greater returns. However, it’s probably best as a first-timer to focus on a location that will pay off as a solid long-term hold rather than looking for a quick fix.
Property hotspots can be interesting to read about, but by the time you’ve started looking for properties in that location the chances are everyone else has, too. Property prices can spike when hotspot reports are released, so it might be best to take note and wait until that market normalises again.
It can also be tempting to buy close to home because, well, let’s face it, it’s easy to keep a close eye on any new properties that come up for sale and it’s easy to monitor them once rented. But is this the best strategy?
The beauty of property investing is that the expression “one size fits all” never applies when it comes to strategy. Every property investor is different and the same applies for first-timers. Cash flow can vary, so can risk threshold, geographical accessibility and renovation skill sets.
So, before you choose a location, jot down these limitations and opportunities – you’ll find it will help formulate your strategy and make location-hunting a little bit easier.
Once you’ve started shaping your strategy, you should also ask yourself what your financial limits are. This usually starts with obtaining finance pre-approval before beginning your search.
Knowing your limits before location-hunting can prevent time wasting – not only your time, but also the agent’s time. What’s the point in looking at a location you simply can’t afford?
This is where an expert can help enormously. For example, buyer’s agents who assist with strategy can give you an accurate indication of a specific property’s rental income and general expenses. From this, you can work out what you can afford and stick to it. This is the stage where first-timers often become unstuck and start to guess figures.
Knowing the typical rental income you can achieve on a property in your price range and location is important to the lender, because it helps determine your borrowing capacity.
What lenders really want to know is: Can you afford to pay your mortgage?
So with numbers crunched and finance pre-approval achieved, you know what you can afford. The question is: What should you consider when hunting for the perfect location?
I’ll let you in on five important factors:
1. Keep your options open
I’m a fan of keeping my options open when it comes to location, though it’s good to have a top five location list based on what you can afford and what you desire. This certainly helps narrow down your search and ensures you stick to your financial limit.
This top five list will also help you hunt for a truly independent buyer’s agent with daily on-the-ground knowledge of these areas.
Talking to these local, independent experts about where different suburbs sit in the property cycle is also important, because successful investment is partly about timing.
2. Don’t be afraid to buy interstate, or a good distance from home
Unless you can renovate, build or add value to a property using your own hands and trade skills, then location doesn’t have to be restricted to a place near home.
For example, we often have mining workers based in small remote towns or regional cities enlist us to help them buy properties in Brisbane. We also often have investors from Sydney and Melbourne needing our help to secure a property in the Queensland capital. They like Brisbane for its affordability and potential for growth in population, infrastructure, jobs and, consequently, property values.
This is your first investment, so make it a good one and set up the right network of people around you because, let’s face it, most first-time investors have day jobs and can’t be gallivanting around the country looking through properties and suburbs and talking to agents every week.
3. Look for buyer demand
When deciding on a location, buyers often look at factors including employment opportunities, infrastructure spending and proximity to public transport, schools and amenities. It might help if you give your locations a rating out of 10 for each of these criteria.
4. Consider the demographics
You don’t want to buy a house in an area that only attracts a small slice of the rental market, or the sale market for that matter.
Also, consider how long you’ll be waiting for a suburb to gentrify and for its demographic to change. The suburb you invest in might have the potential down the track to see big changes, but is there perhaps another suburb nearby that is already showing positive signs of change? A nearby suburb may historically have greater demand and higher rents and require a slightly higher buy-in price.
5. The ‘want’ factor
For me, supply and demand is the top influencing factor. I like to call it the “want” factor. I like to buy in locations where people want to live. Strong buyer demand should help give a valuer confidence when it’s time to revalue your investment property in the future.
If you haven’t noticed, people like living, visiting and renting in similar places. Increasingly, pressure is being placed on our property supply in urban centres and this can influence strong and consistent capital growth. So established areas with a solid history of demand, and consequently price growth, are the areas I like to buy in.
That’s some food for thought on your first investor journey. Now, time to start hunting!