Why property selection is the final piece in the investment puzzle

Do you know the difference between a superior investment property and an inferior one?

Well, it is – quite simply – due diligence.

Of course, as buyers’ agents, this is the key element of the services that we offer our clients every day.

We spend countless hours researching locations before they are on anyone’s radar before we decide to investment there.

Often, what looks like a solid option, falls over because of metrics that can be tricky for the layperson to understand.

For example, it may have good cash flow for investors because of affordable property prices, but the low buy-in prices are because the area itself has a number of issues that are unlikely to be remedied anytime soon.

On the other hand, a location may look like it’s struggling, but the fundamentals are actually there for future price growth if you know where to look, such as in Geelong several years ago when we started investing there for our clients and for ourselves personally.

Property is the last consideration

Now this might seem like a strange thing for a property investment professional to say, but property selection is the least vital part of the puzzle.

That’s because if you pick the right area – and have completed the necessary deep-dive due diligence – then you will always find the right property.

Unfortunately, novice investors usually choose the property first with the location usually being one that they are familiar with – perhaps because they live there, too, or their parents do.

This often means the capital growth with be sluggish because they didn’t understand the market fundamentals of the location as much as they did its amenities or its simple geography.

Sometimes, they reason, that because they like the location themselves, then it will tick the boxes for everyone else as well.

However, strategic property investment involves much more than just the general “likeability” of a place.

Sure, that plays its part, but it’s well down the list of the market fundamentals that must be met for an area to become a superior investment location.

The availability of online property research has made it seem easier to complete the necessary due diligence, but it’s understanding what the metrics are telling you that makes the biggest difference of all.

Amongst the raft of research that we complete before we choose a new investment location are these 10 questions that must be answered favourably before we even proceed.

The big question is, would you understand what the answers are telling you?

  1. What is the area’s cash flow?
  2. What are the area’s days on market?
  3. What are the vacancy rates?
  4. What is the historical growth of the area?
  5. What are its future infrastructure plans?
  6. What is the population growth forecast and its demographic mix?
  7. What about supply and demand of dwellings in the area?
  8. What is the economic vibrancy?
  9. What is the diversity of industries in the area?
  10. What is the overall view of the area?

To find out more about the 10 key questions above, download our ebook here.

How To Identify A Hotspot Before Everyone Else

If you want to be a successful investor then you need to know how to identify a hotspot before the rest of the herd. A successful investor knows what drives a market and how to identify these key drivers to see future capital gains. So what are the key drivers that drive growth? And what questions do we need to answer before buying an investment property?

1) CASHFLOW

Before you even consider buying a property you need to check what is the cash flow of that particular area. Cashflow is the amount of money this property costs you each week to hold. When you consider cash flow you need to workout your entire portfolio’s cash flow to determine the type of property and yield that you need to balance your portfolio.

2) AVERAGE DAYS ON MARKET

Average days on market are important as they can tell you how strong that market really is. If you find that the average days on market are coming down then this might be a market that is ready to see growth as it gathers momentum.

3) POPULATION GROWTH

When looking at an area it is important to look at the population growth. I typically like to see population growth higher than the national average. This will create demand in the market.

4) VACANCY RATES

Vacancy rates are a key indicator of seeing if that market is in demand. I like to see vacancy rates 3% or lower with an ideal vacancy rate of 0 to 2%. The lower the vacancy rate the easier it will be to find a tenant.

5) FUTURE INFRASTRUCTURE

When it comes to infrastructure you want to see projects that already have had funding. There are a lot of proposed projects that may happen but unlikely to come to fruition. You don’t want to be gambling your money in the hope that a project may get funding one day.

Infrastructure creates jobs and desirability to live in that particular area. Don’t be mistaken! Just because there is one project going on in that area it doesn’t mean that area is good for investing in. You need to be sure that it ticks all the other boxes before this area is viable to invest.

6) ECONOMIC VIBRANCY

When it comes to economic vibrancy you want to know that this area has everything it needs for people to see themselves living there. You want to be looking to see that the area has good transport, shops, supermarkets, hospitals, schools, roads and shopping centres. Remember when an area becomes a hotspot it is because everyone wants to live there.

7) BUILDING APPROVALS

Building approvals is the key to knowing how much supply is coming to an area and if that area will be in demand for years to come. You want to see that the population growth for that area is higher than the number of buildings being approved.

8) DIVERSITY OF INDUSTRIES

When it comes to stability in a market you want to know what industries drive it. You want to be choosing areas that have multiple industries to ensure that the area you invest has jobs. After all, it is money that allows people to buy houses and jobs are key to sustainability.

9) HOUSEHOLD INCOME

You want to see incomes rising, or higher incomes relative to that area. If people can afford to pay more and all the other boxes can be ticked, then this area is ready to be invested in.

If you answer these questions every time you invest in an area then you can assure that your one step ahead of the herd and you will be able to maximise your growth.

PRIVACY POLICY

Respecting your Privacy

Your Property Your Wealth Pty Ltd (YPYW) is committed to supporting the Australian Privacy Principles for all fair handling of Personal Information which set clear standards for the collection, use, disclosure, storage of and access to Personal Information collected during the course of business operations and compliance with the Privacy Act 1988 (Commonwealth) and its amendments (the Act), and the Australian Privacy Principles (APPs) set out in that Act. You can see the full text of the APPs online at the Office of the Australian Information Commissioner’s website at:

http://www.oaic.gov.au/privacy/privacy-act/the-privacy-act

Personal Information means your name, mailing or residential address, telephone number, email address and other transaction and registration details including the company you work for and your role and financial information, including credit card information and information collected from credit reporting agencies.

Our respect for your rights to the privacy of your personal information is paramount.  We have policies and procedures in place to ensure that all personal information, no matter how or where it is obtained, is handled sensitively, securely and in accordance with the APPs.

This Privacy Policy sets out:

  • What sort of personal information is collected and stored;
  • How information is collected and used;
  • What happens if you choose not to provide the required information; and
  • How you can request access to the personal information we hold about you.

From time to time it may be necessary for YPYW to review and revise this Privacy Policy. We reserve the right to change our policy at any time. Amendments or replacements of the Privacy Policy will be posted on our website.

Collection of Your Personal Information

We only collect personal information relevant to our business relationship with you so that we can provide our services and products. We may collect your personal information:

  • directly from you including via telephone, email or facsimile;
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Is your personal information secure

Where you submit personal information, we manage it by using up-to-date techniques and processes that meet current industry standards to ensure that your personal information is kept secure and confidential. We also take measures to destroy or permanently de-identify personal information if it is no longer required.

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You acknowledge and consent that by providing your personal information to us that we may use and disclose your personal information for the purpose for which it was collected or for a related or ancillary purpose such as:

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What happens if you do not want to disclose personal information?

You have no obligation to provide any personal information requested by us, but if you choose to withhold personal information, we may not be able to provide you with the products and services that depend on the collection of that information.

Removing your personal information

You may contact us at any time in writing and request that we remove and delete your stored personal information.

Providing Personal Information About Another Person

You represent to us that where you provide personal information to us about another person, you are authorised to provide that information to us, and that you will inform that person who we are, how we use and disclose their information, and that they can gain access to that information.

Linked Sites

YPYW’s website may contain links to websites which are owned or operated by other parties. You should make enquiries as to the privacy policies of these parties. We are not responsible for information, or the privacy practices of such websites.

How can you access your personal information?

You may in writing request access to personal information that we hold about you. We will provide you with access to personal information in accordance with the Act and APPs and we may not grant you access to the personal information that we hold where the APPs allow us to do so. If you are refused access to information, we will provide you with reasons for the refusal in writing.

How to contact us

If you have any questions in relation to privacy, please contact us on 0490 912 045 or email Daniel Walsh – admin@ypyw.com.au. For more information about privacy law please visit http://www.oaic.gov.au/privacy.

High-Performance Property Investment in 5 Simple Steps

In this free guide, you will learn how to Implement the same strategies that led me to build a $3.5 million dollar portfolio in less than six years. – Daniel Walsh