How To Choose The Right Investment Property

In my world, the right investment property is not a one size fits all like many are led to believe. 

Sure, there are some fundamentals that I like to see, like “it shouldn’t be located in a high-risk flood zone or directly underneath a busy flight path”, but when we come down to the nitty gritty of property selection, there are other factors we need to consider if we’re going to get it right. 

Throughout my many years of investing for myself as well as helping others, I’ve come to realise that not all investors should be treated equal, and nor should all properties. 

A certain property may be 100% right for one investor, but completely wrong for another. 

This is because, as investors, we’re all different. Be it our skillset, our budget, our available time, or our stage in life, no two investors are the same or will have the same goals. Most importantly to consider, is that not all of us want exactly the same outcome from our investments. 

Sure, it’s true that a typical investor profile starts off with, “I want to achieve capital growth and good yield”, but when we dig a little deeper, we need to understand the intimacies of what good growth and yield actually mean – to us. Plus we need to weigh in all of the other considerations like the ones I have mentioned above if we are to choose an investment property that is right for us.

We also need to consider risk. 

All investors have varying degrees when it comes to our appetite for risk. 

For example, my former partner who is a builder, had a much greater risk appetite than I do. He felt comfortable leveraging equity to maximum levels, whereas I always felt a little sting when our LVR ratios were above 80% and we were maxing out. Perhaps that’s why he’s my ex?! 

Just kidding, we didn’t break up because our risk appetites were different! 

But the truth is, all of the above come into play when you’re looking to decide on which investment property is right – for you.

When Ben and I purchased our flats in Dicky Beach in late 2019, I instantly knew it was the right investment for us. In fact, we both did. 

This is because I’d treated us like Clients and done a Buyer Brief based on what we wanted to achieve from the investment. 

The first and I believe most important question you need to ask yourself is WHY.

Why are you buying this property? Why are you investing in property in the first place?

Now, I’ll get to the juicy parts because that’s why you’re here right? 

Here is the exact thought process and breakdown of why we bought what we did, and why I KNOW it was the right property for us.

Perhaps this will help you to decide what is and what isn’t the right investment if you’re soon to be in the market.

OUR PROCESS

Our Why

Firstly, we worked out Why we wanted to buy. 

Now, there were a number of reasons we had. We both wanted to secure a property close to the beach, somewhere on the Sunshine Coast because our long term plan is to eventually retire at the Coast. We wanted a future land holding.

I also wanted to expand my Buyer’s Agent services to the Sunshine Coast because I had been asked by numerous Clients if I could represent them in a Coast purchase. So I needed a base if this was going to happen. 

Thirdly, we wanted a property that had a high potential to outperform the average capital growth in the area, and all preexisting data makes it clear that properties located in residential pockets within 500m of the beach have statistically outperformed those located farther away. 

Scarcity and owner occupier demand were our driving factors here. After all, who doesn’t want to live near the beach?

Identifying Areas and Pockets

Next, we worked out Where we wanted to buy.

With our criteria firmly bedded down, we then selected certain areas of the Coast that matched our Brief. From here, we identified certain pockets within those areas. 

Yep, I’m all about “pockets”.

These are the certain areas within a suburb that are most sought after. They are usually defined by certain roads, and real estate agents often have catchy names for them. In Brisbane for example, you may have heard of the Padua Precinct in Kedron. 

In our case for our Dicky Beach property, it was East of Elizabeth Street. The local agents call it the Golden Triangle, where Elizabeth Street runs into Buccleugh Street as far down to Russell Street and then back toward the beach. 

It’s no doubt this “pocket” is now hot property.

Once we knew where we wanted to buy, we waited… for 2 years.

Yep, within this time, we looked at several properties but they just didn’t fit the Brief entirely. 

I knew we could buy better if we were just patient and waited for the right opportunity. 

I also used our mini arguments as a gauge for whether a property was right or not. If Ben and I couldn’t agree on a certain property, I knew this was a sign that it hadn’t quite fit the mark. 

But when the right one finally came up, we jumped on it, and this time, there was no disagreement and no second-guessing. 

And you know what, we paid the full asking price. 

Contrary to the belief that a great buy is one that is under market value or “off-market” as many Buyer’s Agents are beginning to spruik, this is not necessarily the case. 

Just because a property is Off-Market and you have an opportunity to secure it before anyone else does, doesn’t necessarily mean it’s a great property, let along the right one for you. It still needs to meet your individual Brief. 

The same goes for a property that is deemed to be under-valued. Don’t make the mistake of jumping on the dangling carrot just because it’s there. 

I get off market and under valued properties sent to me every other day from real estate agents but I don’t automatically put them in front of my clients unless they match the Buyer Brief. 

Our Dicky Beach property had in fact been passed in at Auction as none of the bidders were prepared to pay the reserve. We secured it after the Auction and paid the full asking price because the owner was going to take it off the market if she didn’t get the price she wanted. 

Was it a good buy? Well, you tell me. 

Two years later, our property has bank valued at $1.75M following an initial purchase at $1.2M in November 2019.

Dicky Beach as a suburb has recorded one of the highest growth rates in the last year at 28.37% according to online data. 

Now I know what you’re thinking… the market has boomed in this time and we just got lucky. 

Well, yes that is true about the market booming across Brisbane and the Sunshine Coast, but not all properties have experienced this kind of growth. 

Again, the key term we’re looking for is “Outperform”. 

If you can secure a property with the potential to outperform others in the market, you’re onto a winner if Capital Growth is your key investment driver. 

But circling back to the question of, was is a good buy… for us, Yes it was.

It ticked every box in our Brief, and even more.

We secured our land holding for our future on the Coast.

I got my Coast office.

It was comfortably within our budget.

We obtained the desired level of capital growth.

The property pays for itself. The rental yield of the entire property covers our holding costs.

So to sum it all up in 4 Steps, here’s how you choose the right investment property.

Step 1 – Define your Why.

Step 2 – Understand your Brief.

Step 3 – Pick your Pockets.

Step 4 – Be Patient – wait for the right opportunity and do what you can to secure it. 

(Hopefully at market price or below.)

As a bonus side note because I am always asked… when scouting for areas that are on the verge of a rise, I look out for 3 key things:

1. Urban renewal in the area. Look for people who are doing up their houses or knocking down old houses to rebuild new ones. This is a sign that people are investing in an area and this activity will likely raise the average house price in the short to medium term.

2. Infrastructure is nearing completion. If there is a major road or rail upgrade, a new commercial premises such as a university or major shopping complex about to finalise in an area, these locations tend to experience growth once completion has occurred. 

3. Density. I prefer to buy in areas that are low density and have more of a residential feel. This means staying away from high-rise apartment buildings and sticking to house and land areas where there are restrictions on height limits. People typically prefer to live in lower density areas and if you buy in a pocket where everyone wants to live, there will always be strong demand for your property, even if the market slows. Residential areas have also statistically proven to outperform.

If this article was helpful, please share it with someone you know who will benefit.

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