I’ve been in the property investing game for a long while now.
Over that time, I’ve tried to educate property investors about which properties make the best investments.
As you may know my strategy – and the strategy that we use for our clients at Metropole – is about only buying investment grade properties.
These are the properties that will always outperform the averages regardless of what the market is doing at the time.
Supply and demand
At the end of the day, successful property investment is essentially about simple economics.
What I meant by that is that it’s all about supply and demand.
The properties that will increase in value the greatest are the ones that are in the strongest demand because of a lack of supply.
They also need to be affordable to the right type of people, but I don’t mean that they’re cheap properties.
No, they are properties in the locations that affluent people aspire to live in, plus these buyers can afford, and are willing to pay, the price to secure a property there.
While I’ve educated thousands of investors, there are still some people who don’t realise how much of the heavy lifting a property’s location does when it comes to price performance.
In fact, about 80 per cent of price growth will be because of its location – that is which suburb it is located in – and only 20 per cent will be due to the actual property.
What makes a property more valuable?
In most Western cities around the world, the wealthy and affluent tend to flock together in specific locations.
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Those areas are usually close to the CBD or have beautiful views near the water.
The reason they live in those places is because they are the areas that are the most desirable.
With that desirability comes higher prices but it is a price they can afford to pay.
Poorer people, on the other hand, can usually only afford to buy in cheaper suburbs, which are the furthest from the city.
And that means property prices in those locations will likely always be constrained.
So, what makes a good investment grade property?
The things I look for in any investment (including property) are:
Strong, stable rates of capital appreciation;- Steady cash flow;
- Liquidity – the ability to take my money out by either selling or borrowing against my investment;
- Easy management;
- A hedge against inflation; and
- Good tax benefits.
To ensure I select the best properties I use my 6 Stranded Strategic Approach that involves buying a property that:
- Appeals to owner occupiers
- Is below its intrinsic value
- Has a high land to asset ratio
- Is in a location that has a long history of strong capital growth
- Has a twist, so something that makes it unique or scarce
- And one where I can manufacture capital growth through refurbishment, renovation or redevelopment.
By following these steps, I ensure that I’m only ever buying properties with the best chance of outperforming the averages.
The bottom line…
Some properties in certain locations will always be more valuable than others.
While mediocre suburbs can become solid ones over time due to gentrification, the best suburbs will always be in hot demand because they offer a location that is aspirational to our growing middle class.
It has been that way for decades and will continue to do so in the decades ahead.
