There are many macro, mid-cro and micro property and location attributes that need to be ticked off before buying an investment property.
After determining your purpose, examining your capabilities, selecting an approach and forming an elite professional team, you will finally be ready to find, negotiate and purchase a property.
On the Property Hub Property WEALTH podcast series, KnowHow founder Bushy Martin said there is an extensive criteria to consider when looking for the ideal property and location.
Finding the right location to invest
As soon as a pre-approval is in place, Bushy advised investors to begin working with their buyer’s agent to find a good location.
“As soon as your pre-approval is in place, if you’re buying an existing property, you need to fully brief your buyer’s agent, who has access to national detailed property data along with hands on intimate local knowledge of the good, bad and ugly of identified locations,” he said.
“And this is where the top-down scarcity search, macro-to-micro approach kicks in, as 80% of your value growth is going to come from the location, not the actual property. This approach is similar to what the well respected Property Professor Peter Koulizos refers to as ‘location, land and looks.’ Note here again, that the actual property is the last thing on the selection list.
“So within the bounds of your purchase price and property profile, your buyer’s agent will provide guidance based on detailed data on which state and area is at the right time in the property S curve cycle and national property clock, to give you the highest long term potential capital growth, based on an assessment of all of the demand, supply, sentiment, drag and lift influences.”
Assessing a location’s attributes
An area needs to demonstrate a variety of attributes first before investors examine a specific property on a micro level.
“So at the macro level, you’re looking for evidence of the key growth drivers of the three I’s – new committed Infrastructure, Industry and Incomes, plus a host of other supporting metrics and indicators,” Bushy said.
“At the mid-cro suburb or precinct level, you’re looking for evidence of a good rental population ratio of a max of 30%, but preferably 25% or lower to ensure that emotionally-driven owner-occupier buyers drive property values, and that the area has a low rental vacancy rate of 2% or lower to confirm rental demand.
“You’re also looking for a good demand to supply ratio or DSR Score. Tightly held land locked areas with scarcity are important here, so you don’t want to be buying in an area where there are unlimited acres of new land being developed, as this increasing supply will dilute value growth.
“At the same time, you or your buyers agent need to be checking local flood maps and bushfire zones to ensure the location is not at risk for these events, or that significant insurance premium costs don’t apply to properties in the area. Technology checks also need to be made to ensure that the area enjoys good internet speeds and mobile signals, particularly now that a lot of people are working more from home.
“To support the lifestyle attractiveness of the area, also look for evidence of good public transport, convenience and walk scores, shopping, entertainment and coffee culture, recreational and community facilities.”
Seeking additional feedback
Investors should look for second and third opinions from both trusted professionals and local community groups.
“Assuming your buyer’s agent has quantified and ratified all of these elements, the next step is to get a prequalified local independent and dedicated property manager to provide a second level of due diligence. This is to ensure a location not only looks good on paper, but also passes the local liveability test, as local community perceptions of different areas can have a big impact on actual area attractiveness that will translate into property price performance.
“Also take the time to join local facebook community forums to ask questions on whether an area is good to live in and to provide feedback on the good, bad and ugly, as unrelated locals with no vested interest are generally happy to provide feedback on what’s good and what’s not and where to avoid.”
Selecting a property
Once an area meets the macro and midcro level requirements, the next step is to start looking at properties.
“The final property selection is more of an intuitive art developed over time, rather than a clinical science. This art relies on intimate local knowledge of what works and what people are looking for in a particular area, which is why we advocate using a good local buyer’s agent. Avoid basing this assessment on what you would personally prefer to live in and focus on the type of property profile in highest local demand,” Bushy explained.
“In this regard, a property needs to be investment grade with owner occupier appeal. So look for properties on the high side of the road in well presented and maintained streets that are close to local parks and recreation facilities. Also ensure that the property has good initial street appeal.
“Look at whether the home creates separation between parents and children in terms of bedrooms and separate living areas, that a front room could double as a work-from-home office, that ideally the property has an outdoor under cover alfresco area, and there is at least 4m from the back wall to the back fence to allow for sufficient space for kids to play on a trampoline or for pets to run around on a grassed area.
“Ensure that finishes are neutral, in good condition and low maintenance (so no wild paint colours, patterned tiles or lairy laminates), and make sure that there’s sufficient heating and cooling and plenty of storage in relation to wardrobes and cupboard space. Remember that 2.7m or higher ceilings will also make rooms feel larger.
“If a location and property ticks all of these macro, midcro and micro boxes, then you’ve likely found a winner that’s in the 5%.”