Tips for choosing the best investment property

We are spoiled for choice when it comes to residential investment property in this country.

The problem is that not all locations and property types are going to deliver the financial and personal returns we seek.

If you’ve decided that investing in residential real estate is right for you the next step is to determine where and what type of property to buy.39653963_l

With thousands of suburbs across Australia there’s no shortage of locations and regions to choose from.

And when it comes to property types there’s plenty to pick from including the ever popular standalone house, unit, semi-detached, terrace, town house, high-rise apartment and split purpose (commercial/residential) dwelling to name but a few.

So we are spoiled for choice when it comes to residential investment property in this country.

The problem is that not all locations and property types are going to deliver the financial and personal returns we seek.

In fact many property investors are faced with what the American psychologist Barry Swartz coined the paradox of choice.

Swartz postulated that having more choices leads to greater anxiety levels because it becomes harder for us to select among a plethora of options all of which seem to deliver what we want and/or need.

So let’s try to take a little of the anxiety out of the equation when it comes to buying an investment property by identifying ways you can reduce your choices by eliminating properties that aren’t going to cut the mustard leaving you to focus on the few that are more suited to your needs.

Set minimum yield and growth requirementsPropertyInvestment

Yield is the amount of income a property generates divided by its cost (calculated annually) and growth refers to how much the capital value of a property increases over time.

Normally high growth properties will return low yields and vice-versa.

By setting yield and growth targets you can eliminate those properties that don’t meet your requirements.

(We’ll look at yield versus growth in more detail in an upcoming article).

Ensure rental affordability

Aligned to the above is assessing average rents in the suburb you’re considering so you can quickly work out whether you are likely to be able to charge the rents you need to make the investment viable.

If you can’t charge what you want than you should move to other areas and/or property types.

Aim for tenant appeal

Certain areas attract certain types of renters who have particular accommodation and location needs.

This can include proximity to things like schools, shops, transport and nightlife.

You therefore need to match the property you’re looking at buying with the potential tenant to ensure there’s a good fit.

Check vacancy rates  

When a property is vacant it’s costing you money and the bills (like mortgage payments) don’t stop rolling in just because you don’t have a tenant.

Aim for suburbs where the rate is equal to or less than 3% as at this level your tenants will be easier to find and are more likely to stick around.

Anything above this level increases vacancy risk meaning those locations are probably best left alone.

For instance be wary of investing in high rise/high density areas as these are often associated with high vacancy rates and poor capital returns.

Stick to areas you know

Local knowledge about a suburb is worth its weight in gold as you are in a much better position to assess the reasonableness of property values and any assertions made by selling agents and vendors.

By sticking to areas where your knowledge is strong you can greatly narrow the focus of your target suburbs.

Narrow your search to properties with unique features

Properties that have unique features or characteristics (like period homes, those with desirable aspects or high land content) will be much sought after by tenants and ultimate purchasers alike.

Therefore, all things being equal it’s usually a good idea to stay clear of properties that are say, run of the mill, lack character or are located in higher density areas.

Consider macro and micro economic conditionseconomy

Before investing you need to consider big picture or macro issues (like the extent to which housing demand and values will be affected by economic, fiscal and employment factors) and local or micro issues.

For instance, if a particular suburb is heavily reliant on one of two large factories or government operations, you could be faced with serious problems attracting tenants and/or being able to liquidate your investment if these businesses were subsequently shut down or relocated.

This could result in big financial problems.

So you need to keep abreast of all factors (not just the obvious ones) which have an impact on housing demand and value.

Demographic drivers

When assessing where to buy you should also consider a broad range of social factors to help you determine if this is the right area for you.

These factors include things like average age and incomes, family make-up (e.g. families with children, couples and singles), income levels, employment rates, crime rates as well local council plans to invest in infrastructure and community services like parks, schools and recreational facilities.

What you can afford calculator coin money save debt

Finally, it goes without saying that you should only buy what you can afford – this includes the purchase price and the ongoing holding costs assuming the property is negatively geared (i.e. where property costs exceed rental income).

By focusing on those suburbs and properties that are within your budget you will quickly narrow down your choice and this will greatly reduce your anxiety, especially since it will help ensure you haven’t bitten off more than you can chew.

Want more of this type of information?

Peter Boehm


Peter Boehm is the Finance Editor for & has more than 30 years' experience in banking and financial services - Visit

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