10 things to consider when buying an investment property

With our property markets performing well over the last few years there are more people interested in getting into property investment.

However if history repeats itself, and it most likely will, while some will develop financial freedom through property, many investors won’t get past their first or second property.

So how do you succeed?

Where do you start?

There are so many options out there, everyone seems to have an opinion and many of their suggestions are conflicting.

To start you on the right path I’d like to help by suggesting ten questions that, I believe all budding investor needs to get their head around before buying into the property game.

1. What do I want to achieve?

Is it money? Wealth? Financial freedom? Maybe all of the above!success1

Remember the bricks and mortar are not really the end goal; rather they’re just the vehicle you choose to get there.

So firstly identify your end goal and then formulate a plan to get you there in a time frame that works for you.

You see… property investment, as with any other journey, requires you to know where you’re heading and how you intend to get there.

Unfortunately most investors don’t have a plan and that’s why they get lost along the way or get distracted by the latest investment fad or the next “hot spot.”

And if they do have a plan they rarely review it to make sure they’re on track.

2. What is my preferred strategy?

gold houseOnce you know where you are going you need to implement an investment strategy that helps you get there.

Since you can’t save your way to wealth so my goal is to build a substantial asset base though capital growth. My 4 stranded strategy to achieve this is:

1. Buy a property below its intrinsic value
2. In an area that has a long history of strong capital growth
3. I look for a property with a twist – something unique, special or different and
4. A property where I can manufacture capital growth through renovations or redevelopment.

3. What type of property?

You need to own the right type of property; one that will be in continuous strong demand from both owner occupiers and tenants, because the former push up market prices, whilst the latter help to pay your mortgage.

Today more people are trading their backyards for balconies and that’s why I prefer inner suburban apartment style accommodation.

4. Should I buy something old or new?

More often than not, new or off the plan apartments are a “box” in a high-rise monolith.

The problem here is that you pay a premium to the developer and miss out on the first few years’ capital growth.new vs old

At the same time the majority of owners in the building are likely to be investors. I prefer buying where owner-occupiers, who look after the building better, predominate.

If you haven’t guessed it by now, I prefer to buy an established apartment, in a character filled block, which has the potential to be “tarted up” with cosmetic refurbishments.

This gives you the potential to not only increase your rental income, but also “manufacture some capital growth.

5. Where should I buy?

Location is critical to the long term performance of your investment.

I look for suburbs that have always outperformed the averages or ones going through gentrification.

These are generally lifestyle suburbs in major capital cities close to the CBD, amenities or the water.

Then I drill down even further and chose the best spots in those suburbs.

6. When should I buy?

While there are investment opportunities at most times, I’ve found that many of my successful investments have been made by going against the crowd and buying when most people are worried about the market and sitting on the sidelines.

7. What can I afford?

Before you start looking at what to buy, you need to know what you can afford to buy.

Get a loan pre-approved and make sure you’ve set some funds aside for acquisition costs, holding costs and a financial buffer for a rainy day or rising interest rates.

8. How will I set up my purchase?

It’s important to own your property in an entity that protects your assets and legally minimizes your tax.

Whether you buy in your own name, your super fund or a trust, you need to be aware of what it will mean for you and your family, now and in the future.

9. Who should I ask for help?

If you are the smartest person in the room, you are in the wrong room!

The real estate game is a team sport, requiring expert input and advice from a qualified accountant, a smart solicitor, a finance broker, an independent property strategist and a mentor who will help set you up for a win.

10. Should I take advice from my friends and family?

In general the answer is – no!

Not unless they’re a particularly smart investor having invested successfully through a number of property cycles.

This is because “the crowd” is usually wrong.

When everyone’s optimistic, people come out of the woodwork keen to give well-meaning advice, however investors tend to be most optimistic at the peak of the cycle – when the risk is the greatest.

Just like they are pessimistic at times when the property market is flat and the risk of further downside is low.

As our real estate markets pick up and the cycle moves on, a whole new generation of investors will enjoy the prosperity property can bring.

If you ask the right questions you could be one of them.

So what will you do about this?

Owning real assets is a powerful wealth creator and with our property markets moving on a whole new generation of property millionaires will be created over the new decade.

However, if history repeats itself, and it most likely will, most people who get involved in property investment will not become financially independent.golden house

Many will buy the wrong property or at the wrong time or in the wrong location.

With so many mixed messages out there about what type of what makes a good property investment it’s hard to know who to listen to.

It’s hard to know who to trust.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat.

Or call us on 1300 20 30 30.

When you attend our offices you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.

Just click on this link to find out more and reserve your place.

Also published on Medium.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

'10 things to consider when buying an investment property' have 31 comments

  1. July 11, 2013 @ 10:50 pm Andrew Bevin

    Thanks for the great checklist Michael.
    Where do you see we are in the property cycle at present?


  2. September 11, 2013 @ 8:10 pm Robert.a

    Looking to invest in an apartment inner south east,east of Melbourne.soth yarra,toorak,prahran,Windsor or Richmond for example.not interested in the big new apartment blocks,but in saying that what would be the largest apartment blocks to stop at.Also what do you consider the top 5 inner burbs to invest in.also I am looking at Elwood.approx 350 to 400k,cheers


    • September 11, 2013 @ 9:24 pm Michael Yardney

      I like your investment criteria Robert.
      Elwood is a great suburb, but your budget may be a little low for Elwood today. Entry level is a little higher than that for a good property.
      And mentioning a suburb doesn’t help because there are areas in most of the good suburbs I would avoid and even properties in the good areas I would avoid. In fact less than 5% of properties are investment grade.
      Be careful in your selection – getting your first investment right is critical. Have you though of getting the team at Metropole to help you?


      • September 12, 2013 @ 8:11 pm Robert.a

        No,I would like the team at metropole to assist me that would be great.thank you


  3. November 13, 2013 @ 8:00 pm Harpal

    Great article Michael with some terrific insights. In a word what is your advice to a novice investor?


  4. December 20, 2013 @ 2:30 pm Justin

    I just want to add something, it is also important to know the environment or community where your home is belong. Remember that it will gonna be permanent so if you don’t like the society, you will gonna have a bad time. 😀


  5. January 10, 2014 @ 2:57 pm Nik

    As always another great insight from Michael. I’ve been following you on the social media and your blogs for long time. I just need to muster up, research and take my first step towards investment property in Melbourne. Whats your guidance towards +vely geared or -vely geared esp considering next couple of years. Is an interstate investment advisable ?


    • January 10, 2014 @ 3:24 pm Michael Yardney

      If you’ve been follwoing my blogs you Will know that there is no doubt in my mind that the only way to become wealthy through property history capital growth don’t even bother considering the cash flow route.

      Since your Melbourne-based there is no reason why you shouldn’t buy your first investment in Melbourne but you’ll need to be very selective.
      Rather than trying to do it all in your own why not get the team at Metropole on your side to level the playing field.
      Nick just click the following link and organising obligation free consultation: http://www.metropole.com.au/property-investment-australia/investor-enquiry-form/


  6. October 16, 2014 @ 5:18 pm Marc

    Hi Michael,
    I’ve been reading your blogs and books and am getting to the point that I’ll have a deposit ready to buy an investment property soon. As I have never bought property before it is all a bit daunting and I have been thinking about making an appointment with your Sydney office. Anyone from there that you can recommend to look after a novice? Being in sales myself I’m hoping to find someone that I have good feeling about. Cheers, Marc


    • October 16, 2014 @ 8:54 pm Michael Yardney

      It would be a pleasure helping you get started.
      Please call Errin in our Sydney office and ask to speak with George Raptis, my business partner there – 02 93272266


      • October 17, 2014 @ 9:57 am marc

        Thank you Michael


  7. October 17, 2014 @ 10:15 pm mike

    All interesting comments, a couple of comments from my experience if i may. Robert would only consider established apartments in blacks less than 20. Any more than this and owners corp. generally becomes expensive plus there is more apartments potentially being rented out or sold the same time as yours. i like elwood also, however in your budget would only afford one bedder or small two bedroom. Michael i think cash flow and capital growth are both important, cash flow for holding costs and makes it easier to fund future purchases, otherwise may have equity available but can’t service the loan. The numbers are very important.


    • October 17, 2014 @ 10:52 pm Michael Yardney

      Mike Younare right cash flow is critical, it keeps you in the game, but it’s capital growth that gets you out of the rat race


  8. October 18, 2014 @ 8:45 pm kYLIE

    Hi Michael – good blog. I adhere to the same strategy. I have well performing 2 bedroom units in great inner suburbs of Sydney. I have been researching Melbourne to purchase a 2 bedroom unit there for about $530K to $580K and trying to keep away from all that new development. Which suburbs do you prefer for continual rental demand and strong capital growth into the future out of Brunswick East, Collingwood, Fizroy,Carlton,Prahran, Armadale and South Yarra? thanks Michael


    • October 18, 2014 @ 10:37 pm Michael Yardney


      That’s a good budget that should allow you to buy a great apartment. I’d avoid many of the suburbs you mentioned.
      I do like very selected parts of Prahran and lots of Armadale (which may be out of your budget.) Avoid Sth Yarra – too much oversupply of new apartments.
      But the challenge is only 5% or so of the properties around are what I’d call investment grade. How are you going to know which to buy? Have you considered using our services – 50% of the proeprties we’ve bought in the last 2 months have been off market – one’s you’d never have even come across


      • October 19, 2014 @ 5:59 pm Kylie

        Thanks Michael, I have considered your services and I do understand investment grade properties, but I also like to do lots of my own research first so I have a good understanding of the area, and type of property myself so I know I’ve got a good one. Then it’s easier to see another good one later on. I will use the link you provided above to talk to someone in Melbourne over the next week or two. Thanks for your advice on the suburbs.


  9. October 20, 2014 @ 12:54 pm kay

    Hi Michael,
    we are fairly new to the investment game but have one already, a house in Newtown, Sydney. We now have $950 to buy another, prefer houses to apartments and are considering Inner west. Would we be better to buy something smaller closer to the city with great rental potential but already expensive (Newtown) or larger and a suburb or two further out (Dulwich Hill / Marrickville) for better long term growth potential?
    Many thanks


    • October 22, 2014 @ 9:28 pm Michael Yardney

      Great questions Kay
      I like the inner west and we’ve bought many properties there for our clients over the last 6 years, and boy have they grown in value.
      All the suburbs would potentially be great locations, but within those suburbs less than 5% of properties are what I’d call investment grade.

      Have you considered a well located apartment in a beach side suburb like Bondi or Coogee? You budget would buy a great investment there.


  10. October 24, 2014 @ 9:18 am kay

    Hi Michael,
    thanks so much for your response, certainly food for thought.
    Can you summarise what you mean by investment grade? Is it the same as your 4 point criteria?
    If we were to use your services to buy a property how does that work?
    many thanks


    • October 24, 2014 @ 9:28 am Michael Yardney

      Most properties don’t make good investments – they don’t outperform with regards to capital growth in the long term and at the same time deliver reasonable rental returns and the ability to add value.
      My 4 stranded strategic approach is only a little part of how we choose investment grade properties.

      You’re talking about investing close to $1million – a huge sum. If you’re the smartest person in your team you’re in trouble,and as you hunted, there are many ways Metropole could help – this is not the right place to tout our services.

      Please call Erin in our Sydney office on 02 9327 2266 or leave your details here: http://sydneybuyersagent.com.au/property-investment-sydney/investor-enquiry-form/ and chat with my business partner George Raptis who knows the Sydney market backwards


      • October 24, 2014 @ 10:27 am kay

        Thanks again Michael, I think i will definitely give George a call, seems like I need help!


  11. December 2, 2014 @ 10:27 am Adam

    Hi Michael,
    We are were looking at buying a property to live in but do to sky rocketing prices in the areas we would consider, we are now looking at investing. Do you have any tips on areas we should consider out in Sydney’s western suburbs as we have no idea where to even start looking? Looking at spending between 3-$400.


  12. February 27, 2015 @ 11:23 pm Dr. Alvin

    Michael, I’m located in Atlanta GA USA. Do you have partners with your expertise here that I can call on?


  13. December 8, 2015 @ 3:09 pm nathan

    Nice blog, it helps me a lot and also I can use this consider when buying a property. I have read also CONSIDER REMINDERS WHEN BUYING A PROPERTY try to read it also @ http://www.propertyasia.ph/newsroom/2015/12/02/check-out-these-reminders-when-buying-properties-in-the-philippines/ It will also help you to guide when buying property :)


  14. May 10, 2016 @ 8:23 am Pat

    Hi Michael, thinking about buying in Smithfield Cairns, what are yout thoughts, regards Pat.


    • May 10, 2016 @ 2:43 pm Michael Yardney

      Please don’t burn your money investing in Cairns!
      Only last week I spoke witha Cairns agent who told me what was “really” going on in Cairns – there are much better places to invest


      • October 13, 2016 @ 8:39 am Grant

        Hi Michael. I too was considering buying an investment unit in a Cairns or Smithfield area.
        What is really going on in Cairns? Can you expand please?


        • October 13, 2016 @ 9:48 am Michael Yardney

          Grant – lot’s os talk, but little happening – Cairns is definitely NOT on my radar for investment properties


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