Property

When ‘location, location’ fails, here’s what to look for in an investment property

Michael Yardney /

You’re armed with a budget and you’re ready to find your investment property.

You know it’s all about location, so you set off to find your waterfront, beach-access, close-to-transport piece of real estate gold. But everything is out of your price range.

Properties that tick all the right boxes for good capital growth potential can start to lead you into expensive territory, which can be out of reach for tight budgets — particularly for first-time investors.

We’ve all heard the popular real estate adage ‘location, location, location’, but when budget constraints narrow our criteria, what do we look for instead?

Three factors to consider

When you buy an investment property there tends to be three variables:

1. Price — this is determined by the banks, so you usually have little say here;

2 . Location – remember, around 80% of your property’s performance will be due to its location, so this is a factor I don’t like compromising on; and

3. The property — this is where you may have to make some compromises if you’re on a tight budget.

So for those investors seeking out more affordable properties, you may need to make concessions in the type of property you buy in order to stretch your dollar further.

However, there are some properties to steer clear of at all costs:

• Those that back onto highways or are located on main roads;
• Ones that are too close to train stations or airports; and
• Properties located near factories or industrial zones.

If you can only afford a property in any of the above locations, keep your money in your pocket and either look elsewhere or wait till you can afford to buy an “investment grade” property.

What do you do when you have to compromise on the location?

Here are some tips if you’re finding your budget is a bit tight:

1. It may be better to buy an apartment in a great location that a house with land in a secondary location;
2. It may be better to buy a one bedroom apartment in an high growth suburb than a two bedroom apartment in a secondary location;
3. Consider buying a rundown dwelling in a better location, as you can always bring it up to scratch with some renovations down the track;
4. If you can’t afford a house ,consider a town house or villa unit — both these types of property benefit by having a high land to asset ratio; and
5. Consider taking advantage of the ripple effect by looking for a good property in an adjoining suburb — one that will benefit from the outward ripple of rising property prices.

Finding an “investment grade property” is a time-consuming task with plenty of research and planning required, however if your budget is tight, don’t bend on certain ‘deal breakers’.

You can never change a property’s specific location so don’t compromise on this factor.

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Michael Yardney

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia's leading experts in wealth creation through property and writes the Property Update blog.

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