Wed 08 Aug, 2018
How to Decide Where to Invest in Property
When it comes to real estate investment, deciding where to invest in property can seem like a daunting task. With an abundance of neighbourhoods and property types to consider, many investors often get caught up on deciding where to invest in property. However, it’s important to remember that the type of property and its location largely depends on the investor’s goals, budget and available time to spend on managing the property.
In this blog, we’ll discuss some things you should consider when choosing a location for your property investment.
Deciding Where to Invest in Property
If you’re deciding where to invest in property, make a conscious effort to think logically, not emotionally. Some investors fall victim to quaint streets in their hometown or apartments in buildings where they lived out their wild youth. But what really matters is whether you’re going to get the returns you need to grow your portfolio.
Home or Away
First of all, consider whether you’d like your investment property to be close to home, or whether you’d be open to looking interstate. Generally, nearby properties are logistically easier to maintain, but looking further afield can see you realise opportunities in booming markets. For example, the past couple of years have seen Melbourne and Sydney markets overcome with demand, pricing many buyers out of the market. If you’re losing out in saturated markets, looking further afield may get you more for your money.
Whether local or interstate, always keep your finger on the pulse of up-and-coming markets. Often, neighbourhoods begin to show signs of popularity many years before property prices reflect the heightened demand. That’s why keeping abreast of these signs could put you in the driver’s seat of a proactive investment move.
These signs can include gradual gentrification of otherwise traditional areas, an influx of a certain demographic like young professionals or retirees, or the commencement of specific infrastructural developments that would enhance the area’s livability.
More locally, signs of upgrades to rail transport, the development of a new university or shopping district may indicate that investment potential is on the rise. Look beyond the property itself and think about the lifestyle that surrounds it. This will offer clues as to how in-demand the area is.
Lead with Research
Looking at historical data for multiple areas of interest will help you decide where to invest in property. First, consider whether you are looking for a capital growth investment or a cash flow investment. Then look at 10 year rental yields and property prices for your chosen shortlist of areas. By comparing how rental yields and property prices have changed over time, you will be better equipped to forecast your appetite for risk. Vacancy rates are also important, and may help inform the type of property you invest in, as well as the location. Long vacancy periods are bad news for investors – especially cash flow investors. Ask yourself whether you would have the financial capacity to maintain a vacant property, and whether that would be worth your while. If not, sourcing a suburb with a balance of demand and value may suit your strategy best.
Look to the Economy
Your final point of research is the wider economy. While some suburbs may have enjoyed impressive capital growth over the last decade, external factors could put that growth at risk. Keep in the loop with the Reserve Bank of Australia’s cash rate announcements, and explore trends within lending, inflation, wage growth and consumer spending. Economic conditions could indicate that the market has peaked, and price correction may be about to alter property values. In these instances, it may be wise to adopt a watch-and-wait approach, and strike when values dip.
Investing in Property With Your SMSF
If your property investment strategy is to save for your retirement, consider setting up an SMSF. With an SMSF, you can use your super to invest in property. However, it’s important to remember that your chosen property must be aligned with the fund’s overall strategy. It should also remain compliant with your trust deed. If your initial strategy outlined cash flow-focused investment decisions, be wary of jumping into a capital growth investment without making the necessary changes.
If you’ve already decided where to invest in property, book a free consultation with the experts at Squirrel to learn how you can use your super to purchase the property!