There are many different considerations when it comes to investing in property. Below are some tips that we think are important when you are searching for that right place:
1. Supply and demand in an area
If there is only one key element that you need to investigate the most, supply and demand would be near the top of the list. This drives the prices in property as the more people that are looking for a property in your area, the more likely the prices are to increase. A good but extreme example is buying a property in the outback of Australia vs buying in heart of Sydney. If you were to buy in the outback, there may be some supply of houses there but the demand for people to move to the outback in the scorching weather would be very low. If no one wants to move there, why would you pay a higher price? Contrast that with Sydney where we are expecting the population to grow to 8 million by 2050 and with a shortage of property, you can see why the price can continue to grow because the demand is there
2. Employment attracts demand
With jobs comes people and with people comes demand. So knowing the areas where you can see that people will go to because they need a job will help you when forecasting potential areas that can expect an increase in demand. Real examples of this can be seen in the mining towns. Once the jobs finished in those areas, people are forced to move to another area to find work. So with less people in the town because of less jobs, you are left with a higher supply with less demand for it which leads to a drop in the prices. This is also seen in larger cities such as Perth where the net migration figures show that more people are leaving then coming in, which is leading to a drop in property prices.
This can double up as convenience as well. Where there is convenience, there are more people that will want to be in an area. If you make something very easy for a person, you will find that they will be willing to pay for that convenience. Would you pay $50,000 extra to be able to live 10 mins away from work by catching a train that is 5 mins away from your doorstep vs travelling 1 hour after walking 10 mins to the bus stop, catching it to the train station and then walking another 20 mins to work? While there are some people that may not mind, there is a large portion that would rather pay that extra part for the convenience it brings.
4. Owner Occupier appeal
There has been an ongoing debate in the investor world on whether you should purchase a property that you would live in vs a property that is only good for an investor eg student accommodation, defence housing, small rooms, etc. My opinion on this is that I would only buy a property that I could see myself living in. Simply put if I don’t like the place, then I could imagine several other people that may have a similar opinion to me when I look at a property. That immediately rules out a percentage of the population that would buy the place which reduces demand. When you have a property that you can see yourself living in, you open up that property to everyone as both investors and owner occupiers would want that same property which opens up demand.
5. Cash flow
This one is left to last as it is a really important piece when investing in property. You need to be able to know that you can afford that investment property immediately and also over the next how ever many years you decide to keep the property. Understand the ongoing cost and also be able to plan in your budget the unexpected cost that will come up when investing in property. How much you need to pay out of your pocket each week to keep this investment going, how much you may receive back from negative gearing, how much you may need to pay in taxes if you have a positively geared property, all of this should be taken into consideration when investing your money into property.
While property investing has more elements to it than just these 5 tips, hopefully it can be a good starting base for you to consider when making a decision.