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How to determine the best location for an investment property

Despite the media attention on the timing of property investment, where you buy is often more important than when. Here we share how to determine the best location for an investment property.

There is a lot of attention in the media on the timing of property investment. Although the focus is centred on entering the market at the right time, this can be a challenging and risky exercise. There will always be a lucky few who pick the peaks and troughs in an investment market. However with the high cost of transactions in the property market, you can erode much of your gain by doing this. Property is a long-term investment, and where you buy is often more important than when. We’re not going to give you tips on where to invest in Australia – locations and properties will vary depending on people’s individual circumstances. Instead, we’re going to look at the factors to consider when deciding the best location for an investment property.

Is the area economically diverse?

Understanding the diversity of the local economy is crucial when determining the best locations for investment property.  Avoid cities and towns reliant on a single industry, for example mining towns. One of the key drivers of a property market is employment. If one company or industry provides the majority of jobs in an area and it takes a hit, it’s going to hurt your property investment. It becomes more challenging to find tenants, rents start falling, and you will likely struggle to sell the property.

What is the proximity to employment?

Continuing from the above point, you need your property to be within proximity to jobs. Although Covid has accelerated a movement towards working from home, many still want to live as close to their work as they can, balanced with cost and lifestyle. If the local economy is expanding, this creates more jobs and attracts more people, leading to greater demand for property.

What are the current and proposed housing supply levels?

The property market is driven by supply and demand. In some areas the population can handle a lot of dwellings.  But there will be a point where excess supply in an area will drive down demand for property. If you’re buying a house with thousands of vacant acres next door, there is a good chance that land will be carved up and developed. Similarly, you don’t want an apartment next door to a block of 220 units, with another 180 units proposed across the road. Check with state and local urban planning policies to see what is planned for the areas you’re interested in.

How convenient are the transport links?

Knowing the local traffic bottlenecks and proximity to public transport will help you determine the liveability of a property. You don’t want a property that has a 30-minute queue of traffic out the front door as it will deter potential tenants. Similarly, consider the distance to public transport and if your tenant will feel safe walking to access it at night.  Learn what roading, transport and infrastructure developments are being planned for the future.

What amenities are on offer?

If tenants can have a great lifestyle by being close to their favourite cafes, you’re more likely to attract them.  Proximity to grocery shops, gyms, cafes, restaurants and parks significantly improves rentability. Depending on the type of property, you may also want to consider what schools are nearby.

Are you purchasing the right property for the area?

When considering the best location for an investment property, you need to factor in property type.  There is a lot of debate on houses versus units. If you’re buying close to the city, chasing lifestyle or after an affordable yield, it’s likely a unit will be better for you. If you’re looking beyond the city fringe, then a house is probably better suited to you. Either will work, but it’s a matter of getting the right property for the right area that suits your personal strategy. A quality one-bedroom unit near the CBD with water views will likely do well.  But a small one-bedroom unit 45 kilometres from the CBD is a less sound strategy.

Are you buying for the long term?

There is a lot in the media on what is happening in the property market at any one point in time. However the media speculates less frequently about what is likely to occur in the longer term, simply because it’s not as interesting. Property is a long-term investment, and you’re likely to hold it for 10 years plus. By considering the recommendations above, you can start to form a picture of the long-term trends for what you’re looking to buy. Suburbs evolve over time, the economy will go up and down.  You need to find a property that is going to weather these changes. The best location for an investment property is one with long-term desirability. This plays out well for both renting and resale, which is ultimately what you’re looking for in a good investment.

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