There are many things you need to take in to consideration when purchasing an investment property.
Jobs need to be either plentiful in the area or easy to get to, so transport (road and rail) is next.
Schools (both private and public) are vital as parents like to have their kids go to school close to where they live and avoid the whole transport issue, or at least make it easy. Shops, recreation and general infrastructure are the next factors to look at.
Then you can move on to some important factors many a novice investor won’t pick up, for example: what are the demographics for an area, such as percentage of renters compared to owner-occupier.
With some 34% of Australians renting these days, you are likely to find tenants easier, get better rent increases and experience better capital growth if you buy where the percentage of renters is well below 34% say.
Then you have to take into account how the market is going to skew these numbers in the coming three to five years of development.
That is, are there truckloads of marketers putting hundreds of their investors into properties that are all going to be under the same pressure for several years to come? The marketeers MAY go into this demographic discussion to convince you why this is a good area to invest but they don’t usually talk about the projected numbers because they (and their mates) are putting heaps of investors into the area and filling it with renters.
The negatives to investors are that it is common for many houses to be completed all around the same time and in chunks over a period of several years. That’s when you have to drop your asking price for rent, possibly give away free one to two weeks rent – add on Foxtel, add a garden shed, pay for mowing or whatever other tactic you can use to give you an edge over those who you are competing with.
It will all work out eventually. As we know, residential property in Australian capital cities generally doubles every seven to ten years, so TIME will recover buying in these estates at the worst time.
However, if we can follow some simple but key steps, we can learn how to buy better to begin with. If we buy BETTER, we benefit from better cash flow and earlier growth so we can duplicate into the next property sooner thus, speeding up the process and eventually retiring either sooner or richer!
There are various estates around Australia that come to mind with this problem mentioned above but one of the emerging ones in the year of writing this book is Pimpama on the Gold Coast.
Pimpama is a fantastic location, situated about five mins drive north of Movie World, Wet ‘n’ Wild and Dreamworld. It’s located in the Coomera district of the Gold Coast, which is known to be one of the fastest growing residential regions in Australia.
So far, so good, right? Well, it gets better. Right on the M1 Freeway between Brisbane and Gold Coast, it’s only minutes away from the Coomera train station. Add to this a vast selection of private and public schools and we have a pretty ideal spot to have an Investment Property.
So, why would I think this has not been ideal?
Well, it nearly is. Ideal, that is. The only problem is that every man and his dog also thinks it is a great spot so they have chopped this suburb up into thousands of tiny blocks. 400m2 is considered a large block in Pimpama.
At the time of writing this book there are hundreds of blocks either being built or available to buy to build on with average block sizes of between 280m2–350m2. There are even smaller than that, so builders are building three-bedroom, single garage houses with little or no yard space at all, all not much bigger than a town house.
House after house, row after row, right next to each other. That is one thing but we have seen a high percentage of a certain demographic in this community who are known for having large families which means they commonly live in their garages and park their cars on the front lawn.
What happens to the appeal of the street and suburb when you fill it with renters parking on the grass (because there is nowhere else to park)? That’s right, it is behind the 8-ball so will be the last area to grow in a growth phase of a cycle.
It doesn’t mean values will go down although often it is the case but it means with so many being released together, it cannot prosper unless there are consistent high levels of demand. Now, fortunately for those who invest in the likes of Pimpama, the growth of the Gold Coast will be significant over the next 20 years so demand will ensure new renters are coming through but to build a portfolio quickly, you need multiple properties growing regularly so having property that will be stalled for a few years is not idea. I am always watching it as it is close to where I actually live.
My point is that there are smarter buys out there at this time without being one of the ‘me too’ Investment Property buyers building in Pimpama.
Bang for buck, there are better opportunities picking up ‘infill’ land and building on it. Infill is where you can pick up new property in existing or established suburbs where the infrastructure is already in place, owner-occupier numbers are higher and there are Established Benchmark value housing that will help lift values of the property you buy. Guess what? In most cases you will get larger blocks also, and we know it’s the land that goes up in value, NOT the building!
‘Infill Estates’ are not as far away from the city centre as the latest greenfield estate (the newest patch of dirt in the outer suburbs) which is also a factor for values/rents and demand. If you can get 20–25kms from the city you will find normally that you will get your growth SOONER than greenfield estates further out, thus allowing you to borrow against the equity and duplicate again.
It’s a pretty important factor because if you consider buying a property closer to the start of a growth phase than at the end, you get a chunk of growth of the new property. It could add well over $100,000 extra growth to your portfolio just by ensuring you have chosen wisely in an earlier purchase. Then let COMPOUNDING growth do its thing and you are ahead of the pack!
These statements are generalisations of course and as always, there are always exceptions to the rule, but if you know what you are looking for and then do your research, you are not at the mercy of the marketeers and spruikers who will tell you to just trust that they have your best interests at heart, so just go with their expertise and you will be fine. Well, sure, they are not bad people or rip off merchants but they definitely are opportunists who perhaps take advantage of their position as ‘experts’.
If you would like to learn more about a smarter way to invest head on over and take a look at our book, which is a guide for many successful investors.
Contact me if you would like any further information.