How should you choose the location of your next investment property?
And what are the floods going to mean for Brisbane property values?
Those are two of the questions we answer in today’s question and answer session with Brett Warren.
In the end, you’re going to learn a little about how we put our strategic property plan together to help.
Russel B left the following question –
“Thanks for the great Podcast – I really love it – can I please ask a hypothetical question?
If an investor had a spare $1m, where and how should they spend it?
In the bigger capital city markets where the median property prices are now $1m (or close to) - where would their money be better spent? In the capital cities or further out where they can get more bang for their buck?
Any areas that should be avoided at all costs?”
While that’s a good question - I’m afraid that’s the wrong question, a shallow question, even though that’s where most property investors start their journey.
However, statistics show that around 50% of all property investors sell up in the first five years, and of those that stay in the market, 92% never get past their first or second investment property.
So, if you want to outperform the average investor, if you want to develop financial freedom through property investing, then don’t start by selecting a location, or looking for that ideal property.
What makes a great investment property for you is not likely to be the same as what would suit a different investor at a different stage in their investment journey or with a different risk profile or with a different size portfolio behind them.
The correct order is, to begin with, the end in mind - what do you want to achieve with your property portfolio and then build a Property Plan to get you there.
So, my first recommendation to anyone asking where to invest is to sit with an independent property strategist to formulate their plan.
When you invest in property there are really only three major levers you can pull:
- Your budget – and that is usually determined by the banks.
- Location and you can’t afford to compromise on that.
- The right property in that location.
And unless you have an unlimited budget, and that applies to very few of us, investors usually need to compromise on at least one of the above.
So back to the original question – what makes a great property investment location?
It’s impossible to say this location is perfect for everyone.
When selecting a location, I would initially start by eliminating locations.
I suggest you should only consider investing in Australia’s big three capital cities. I’m also saying that it’s important to be very selective in choosing suburbs in these cities – investment grade suburbs that are likely to outperform.
I recommend looking for an area that has a long, proven history of strong capital growth and is likely to continue to outperform the averages.
In general, there are 3 types of property.
- A-Grade homes and “investment grade” properties are the type of assets you want to own, and the type of properties where great tenants want to live, not because they need to, but because they want to and are prepared to pay extra to live there.
- B grade properties still have a lot going for them, and during hot property markets like we are currently experiencing they still perform well, but their second location within their suburb or the less than perfect attributes of these properties mean they will slump more in downtimes.
- C grade properties – these are to be avoided unless they’re in a great neighbourhood and your intention is to demolish the property and replace it with something more appropriate for the location.
With the median house price in Sydney being well over $1 million, it would be hard to purchase an investment-grade house in a great location in Sydney, however, this budget would secure a family-friendly apartment in one of Sydney’s high-growth suburbs.
This makes “family-friendly” low rise, medium density apartments a great investment in Sydney’s eastern suburbs, the Inner West or Lower North Shore.
Like in Sydney, $1,000,000 won't buy an investment house to get a great Melbourne, however, it would buy a townhouse which would make a great long-term investment.
As rising property values create affordability issues more Melburnians are moving to townhouse living and getting modern large accommodation on compact blocks in Melbourne’s inner-ring suburbs.
Brisbane has been one of Australia’s top-performing property markets over the last 2 years and moving forward, Brisbane house prices are likely to continue to grow strongly.
The Sunshine State is shining and strong demand for detached houses and outstanding demand for lifestyle areas means as an investor, if you buy the right investment property in the right location, you could be primed to supercharge your growth.
$1 million would be a good home in an inner Brisbane suburb.
The Bottom Line
Rather than asking where I should invest or what sort of property should I buy, the questions you should be asking are:
- What do I want to achieve from my property portfolio?
- What do I need to do to get those results? And…
- Who do I need on my team to help me achieve the financial freedom I want with minimal risk?
What will flooding mean for the Brisbane property market?
Flooding was supposed to be a once in a 100-year event and here we are just a decade out from the last round of floods.
In the past few weeks and the coming months, it is important to support those in need of assistance and provide a level of compassion.
But for property buyers and investors, one can’t help being anxious about what another flood event will mean for our property markets moving forward.
But, by understanding several key factors, you can gain back a greater level of control and certainty and move forward with confidence.
In 2011, there were barely any jobs being created and this trend continued with further natural disasters and mining downturns throughout the decade.
Employment growth then started to ramp up significantly from late 2017, with an estimated $16 billion dollars of infrastructure spending set to create 100,000 jobs alone in Brisbane.
With jobs on offer migration steadily started to build from circa 5,000 in 2011, skyrocketing to the north of 16,000 today and creating record demand for housing in a low supply environment.
Demand has been consistently at above-average levels for quite some time now, especially when compared to 2011, while supply has fallen.
I would not expect to see demand fall too much, but with the floods now taking a layer of supply away from the market these flood-free suburbs will just see greater demand.
Put simply, we are in a considerably better position to bounce back more quickly from these floods this time around.
Moving forward, how do you invest with confidence in this post-flood environment, and what are the lessons from the past?
From a macro perspective, start with the bigger picture, understand the driving factors for property prices and invest with greater economic and employment activity.
From a micro perspective, do not take any chances and only invest only in dry, flood-free, and stormwater-free locations.
While history will show us that areas that are flood-affected will still recover, it will just take time and in this environment, likely less than before.
It emphasizes that property should be a longer-term investment and that time in the market is much more important than getting the timing right in the best possible locations.
Links and Resources:
Get a bundle of eBooks and reports - www.PodcastBonus.com.au
Some of our favorite quotes from the show:
“In my mind, property investing is a process, not an event. And it has to be done in the right order.” –Michael Yardney
“Townhouses are really in strong demand in Melbourne with owner-occupiers and definitely with tenants.” – Michael Yardney
“When you do your due diligence, it’s not just floodwater that you’re looking at, it’s also stormwater and overlays that don’t occur as much in other states.” – Michael Yardney
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