It’s no secret that the property market in Australia has changed. Although every state is experiencing different conditions, there are certain trends that carry through each. Namely, location.
Here’s why location matters, and how to choose an investment property based on this old yet tested adage.
Location is key
Yep, you’ve heard this one before. But let’s dig a little deeper. Thanks to websites like realestate.com.au, we can see (accurate) average price growth figures for suburbs over specific periods of time.
In many cases, price growth over a period differs dramatically depending on the area. Realestate.com.au gives Melbourne as an example. (Head here for the source.)
In 1974 the average property in South Melbourne came to $18,700 (swoon). Today, the average price in the same area is $1,400,000. That’s an annual growth of 10.6%.
In Cranbourne at the same time, the average property came to $22,500. Today, you’re looking at $430,000, which is an average annual growth of 7.1%.
So what can we learn from this?
The investor who bought in South Melbourne in 1974 has fared far better than the investor who purchased in Cranbourne. (3 times better in fact.)
As well as location, understanding the psychology of the market, including lifestyle drivers will help you make smarter choices when investing.
So what are these drivers?
What makes a good investment today?
For most people, buying a property is the biggest purchase of their lives – both financially and emotionally.
Property is classed as an ‘emotional asset’, so market drivers are tied closely with human wants and needs.
According to property podcasters The Property Couch, the key drivers behind the market are:
Human activity – what is there to do in that area this weekend?
Human behaviour – what are people going to think about me if I live in that area?
Economic activity – am I close to hubs where I can access employment and earn a good income?
Why do these factors matter?
If budget allows, buyers are likely to pay more for a property if the factors above align. (For example, if the home is close to great cafes, has a nice view and is in a location with social value.)
These factors are typically why some areas stagnate or decline, while others grow.
Being proactive and finding property that matches the factors listed above will help you choose a better investment.
Know your budget first, then do your best to find properties that fit the 3 key factors highlighted by The Property Couch.
Look at areas that have experienced steady capital growth over the past 5 years. Realestate.com.au has accurate figures you can review.
Don’t be afraid to look beyond your comfort zone. You may have grown up in the Northern Suburbs, but perhaps South is a better fit in terms of investment opportunities.
If you can, consider properties within 15 minutes of key hubs. Depending on your budget this may be the CBD, new developments with shopping, business and restaurant hubs or townships.
Follow the 80/20 rule – the suburb does 80% of the work, while the property itself counts for 20%. This means finding the right location matters more than what the house looks like.
Remember, property still counts for 20%, so do consider the house too. If it’s a complete bomb, you’ll undo the hard work you’ve put in finding a location.
The position of the property on the street matters too. If the house overlooks a park, is on a hill, or has some kind of view, it’s more attractive to buyers.
Research demand for types of property in the area. If there has been an influx of apartment developments, it’s possible that demand for units may be low. So investing in an apartment may be a poor choice.
Also consider the demographics in the area. If it’s a family oriented suburb, houses will be more sought after than apartments. Young professionals and university students are usually happy with unit blocks, if the area is on-trend.
And finally, do your due diligence. Get the property inspected and valued, talk to property specialists and take your time. There is no point rushing into the biggest investment of your life.
With the right planning, research and support you’ll secure a good investment that’s within your budget.
Want to know what your budget is?
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We will take the time to understand your goals, and then, we will offer researched and tailored loan recommendations based on them.
This means you’ll know what your budget is when researching the market for your investment property, and won’t waste time on properties that aren’t right for you.
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Financial Advice Disclaimer: This information is general in nature. Mortgage brokers do not provide financial advice. Clients seeking financial advice will be referred to a qualified financial planner.
