10 things to consider when buying an investment property

With our housing markets entering a new cycle – a new phase of strong growth 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. How To Develop Your Property Investment Plan

Close to 50% of investors who buy a property sell up in the first five years and 92% never get past the first or second property.

In fact there around 1.9 million Australian investors never get past the first or second property and less than 21,000 Australian investors only six or more properties

So how do you succeed, how do you get into that small group of investors who build a substantial property portfolio?

Currently, there are so many options out there. Everyone seems to have become a property expert with an opinion of how to create wealth through property.

And, I don’t know if you’ve noticed –  many of their suggestions are conflicting.

I’d like to help start you on the right path 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!

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, I’ve found they rarely review it to make sure they’re on track.

2. What is my preferred strategy?

Once 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 through capital growth.

My 4 stranded strategic approach to achieve this is that I would only buy a property:

  1. That would appeal to owner-occupiers.
    Not that I plan to sell the property, but because owner-occupiers will buy similar properties pushing up local real estate values.
    This will be particularly important in the future as the percentage of investors in the market is likely to diminish.
  2. Below intrinsic value – that’s why I’d avoid new and off-the-plan properties which come at a premium price.
  3. With a high land to asset ratio – that doesn’t necessarily mean a large block of land, but one where the land component makes up a significant part of the asset value.
  4. In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area including gentrifying areas.
  5. With a twist – something unique, or special, different or scarce about the property, and finally;
  6. Where they can manufacture capital growth through refurbishment, renovations or redevelopment rather than waiting for the market to do the heavy lifting as we’re heading into a period of lower capital growth.

3. What type of property?

This will depend upon your budget and while, in general, houses deliver stronger capital growth than apartments, this has a lot to do with the location of your property.

I’d rather own a villa unit, townhouse, or apartment in a great neighbourhood in an inner or middle ring suburb than a house out in the sticks

Today more people are trading their backyards for courtyards and balconies to be situated in the right locations.

4. Should I buy something old or new? 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 decade or so of capital growth.

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.

And the significance of neighbourhood has only become more important. Suburb2

It seems that in our new “Covid Normal” world, people love the thought that most of the things needed for a good life are within a 20-minute public transport trip, bike ride or walk from home.

The ability to work, live, and play all within 20 minutes’ reach is the new gold standard desirable lifestyle.

Imagine being able to carry out your daily activities within a 20-minute walk from home. All the things you need in a day would be just a short walk away.

Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.

In urban planning circles, it’s a concept known as the 20-minute neighbourhood.

Once I find these locations, I then drill down even further and chose the best spots in those suburbs.

6. When should I buy?

There’s no sense in trying to time the market, even the experts can’t get it right.

Instead the right time to buy your next investment property or home is when you’re in the financial position to do so

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 investment 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.

That’s why it’s important to get independent finance and structuring advice before you buy your property.

9. Who should I ask for help?

If you are the smartest person in the room, you are in the wrong room!negotiation-meeting-property-deal-discuss-business-agent-real-estate-property-invest-work

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.

In other words, to secure your financial future you’ll need much more than just a buyer’s agent or a property strategist.

My team at Metropole offers a 360° holistic approach to ensure you Grow, Protect and Pass On your wealth.

We customise a solution to meet your specific needs through a time-tested 360° system for acquiring wealth and help beginning investors buy their first property, experienced investors add to their portfolio and sophisticated investors manufacture capital growth by becoming property developers.

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.

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.

In “interesting” times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s exactly what you get from the multi-award-winning team at Metropole. 

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

Metrople Team

If you’re looking at buying your next home or investment property here’s 4 ways we can help you:

  1. Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family.  Planning is bringing the future into the present so you can do something about it now!  This will give you direction, results, and more certainty. Click here to learn more
  2. Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3.5 Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property.  Click here to learn how we can help you.
  3. Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
  4. Property Management – Our stress-free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years, and our properties lease 10 days faster than the market average.
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Michael Yardney

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


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

    Avatar

    May 10, 2016 Pat

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

    Reply

      Michael Yardney

      May 10, 2016 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

      Reply

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        October 13, 2016 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?

        Reply

          Michael Yardney

          October 13, 2016 Michael Yardney

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

          Reply

    Avatar

    December 8, 2015 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 🙂

    Reply

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    February 27, 2015 Dr. Alvin

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

    Reply

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    December 2, 2014 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.

    Reply

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    October 24, 2014 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
    Kay

    Reply

      Michael Yardney

      October 24, 2014 Michael Yardney

      Kay
      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

      Reply

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        October 24, 2014 kay

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

        Reply

    Avatar

    October 20, 2014 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

    Reply

      Michael Yardney

      October 22, 2014 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.

      Reply

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    October 18, 2014 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

    Reply

      Michael Yardney

      October 18, 2014 Michael Yardney

      Kylie

      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

      Reply

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        October 19, 2014 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.

        Reply

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    October 17, 2014 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.

    Reply

      Michael Yardney

      October 17, 2014 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

      Reply

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    October 16, 2014 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

    Reply

      Michael Yardney

      October 16, 2014 Michael Yardney

      Marc
      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

      Reply

    Avatar

    January 10, 2014 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 ?

    Reply

      Michael Yardney

      January 10, 2014 Michael Yardney

      Nik
      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/

      Reply

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    December 20, 2013 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. 😀

    Reply

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    November 13, 2013 Harpal

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

    Reply

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    September 11, 2013 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

    Reply

      Michael Yardney

      September 11, 2013 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?

      Reply

        Avatar

        September 12, 2013 Robert.a

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

        Reply

    Avatar

    July 11, 2013 Andrew Bevin

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

    Reply


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