The location of your property investment is arguably the most important decision you will make. Finding the right area and neighbourhood can lead to substantially higher returns and fewer headaches down the line.
However, many first-time investors or those looking to relocate make the mistake of focusing too heavily on the property itself, without carrying out proper due diligence concerning the location.
While kerb appeal and renovations are certainly factors to think about, if the underlying fundamentals of the location are poor, even the perfect property will struggle to appreciate in value. Here are some tips to ensure you select the right location for your next property investment.
Do your research
Performing in-depth research on any areas you are considering in investing in is an absolute must. Start by looking at key statistics like historic and projected population and job growth, new infrastructure or development plans, school rankings, crime rates, and demographic data. This will give you a high-level sense of the overall trajectory of the local economy and community.
Next, tap into insider perspectives by talking to local estate agents, residents, community groups and checking online reviews or forums. Agents can provide critical insights on price trends, best neighbourhoods and solid versus risky investments, especially if you’re investing abroad. For example, working with local property specialists can be invaluable when looking to invest in popular tourist spots. Their first-hand knowledge of local markets is essential in navigating foreign investment logistics and regulations.
Also spend time visiting the area, at different times of day and on various days of the week. Walk or drive around neighbourhoods, check out commute times during peak hours, and get a feel for the atmosphere. Observe factors like kerb appeal, proximity to transport, parks and restaurants, parking and noise levels.
This upfront work will pay off tremendously in identifying areas with strong fundamentals and the right fit. Never take a postcode at face value without digging deeper into the key drivers. An extra few weeks’ worth of research could save you from years of disappointment or lost equity.
Consider lifestyle factors
While the investment fundamentals are critical, you also want to choose an area that aligns with your lifestyle needs and preferences, if you plan to live in the property, or those of your target tenants. Carefully consider the proximity to amenities and services regularly used like supermarkets, restaurants, banks, medical offices and schools, and measure commute times during peak hours to your workplace or places you frequent. It can also be beneficial to try out the local transport links to ensure they are convenient.
If relocating from another area, also pay close attention to weather and climate patterns throughout the year. Make sure you can adapt to any significant changes in temperatures, precipitation or extreme weather events, as these could impact your lifestyle, if you’re someone who loves to spend time outdoors, for example. Taking the time to vet these ‘softer’ lifestyle factors will help ensure you choose an area where you will be happy living, and that aligns with your non-financial needs.
Run the numbers
While lifestyle factors are important, you still need to objectively assess the financial elements of any location through a detailed analysis. Study price trends over the past 5-10 years for both residential sale prices and rents, as this will indicate overall growth, seasonal dips or spikes, and help you set realistic budgets. Estate agents or online brokers can help to provide historical sales data for specific areas.
Project out potential operating expenses like property taxes, insurance, maintenance and utilities, remembering to account for any local quirks like high annual tax increases. You’ll also need to research mortgage rates, lending criteria and deposit requirements for investment properties if you’re using funding to buy the property. Crunch the numbers at different rates to stress test affordability and check your budget is comfortable.
Running these key numbers will give you an accurate picture of the financial upside or challenges in any given market. Never rely on gut feelings or future hopes when assessing viability – let the data guide your decision-making to set your investment up for success.
Choosing the right property
Once you’ve selected the ideal location, it’s time to find the right investment property within the area. Investors need to pay close attention to the specific neighbourhood and streets to seek out quieter areas away from busy roads, but still with walkable access to shops and restaurants.
It’s also critical to assess the condition of the building, the age and any major repairs or upgrades needed. Cosmetic renovations may add value, but it’s not always cost-effective to buy a property that needs extensive renovation, so avoid properties needing foundational work. It could wind up costing you more than you anticipated which will eat into your profits.
Review the layout and flow of the space too. Units with open concepts and ample natural light tend to fare better. Check for energy efficiency features like insulation, modern appliances and double-glazed windows, as these will save on operating costs. Storage space and outdoor areas like gardens, patios or balconies also add value for tenants and improve future saleability.
Don’t compromise on aspects like kerb appeal, layouts or storage just to save money upfront or speed up your purchase. Taking the time to find the right property in the right location is well worth it in the long run.
Securing success in your investment
Choosing the optimal location and property for your investment takes time and diligent research. But it is one of the most crucial decisions you will make to ensure your investment succeeds. The rewards of higher returns, shorter vacancies and greater equity growth are well worth the extra effort. By following the tips outlined, you can feel confident you have chosen a location and property with enduring value and aligned to your needs.