As your mortgage broker we pride ourselves on our knowledge and understanding of everything lending and borrowing, but it doesn’t end there for @Finance. Our experience with property investment means we can help with everything from portfolio structure through to making wise and informed property choices.
With this in mind, we thought we’d take a brief look at the golden rule of property investment – something we consider to be your ace of spades when you make the move into investing.
There’s never a real guarantee, but you’ll get the closest thing to a guarantee of long-term success if you get this one rule right in your process.
This statement might sound sensationalist, but it’s impossible to overstate this point.
What is it?
Quality is king.
Allow us to explain a “quality” property and why it’s so important to find one…
A quality property has desirable attributes that ensure it sustains a level of buyer and rental demand that always exceeds supply (the most desirable attribute of all).
You might hear the term “investment grade” in your travels, well, this generally refers to a “quality” property.
What are the factors that contribute then?
Supply and demand is a great place to start. As mentioned, you want your ace of spades to always be in demand, always ahead of supply.
Supply refers to land supply and dwelling type equally. The two aren’t constants, and depend on location much of the time, so it’s important you consider the complete scenario before saying that a house is better than a unit or duplex, which in fact helps illustrate the importance of knowing what’s in demand in a specific location you’re interested in.
Land is a good place to start …
It’s important that the supply of land is fixed, finite. As an example, a decent well established suburb will rarely have vacant land available within 10 or 20km and there’s usually no way new land will be released for sale. If you stumble on some that is, it could be an ace of spades sitting ready for you, depending on price of course.
But, in outer suburbs, land is likely to be more available – supply is present. The closer to that limited land your property is, the better off you are.
Property Type is also a big factor in the supply vs. demand equation.
In locations with high land values, the supply of houses will rarely change considering that this would require sub-divisions and so on. But, the supply of apartments can change … a developer might buy a block and build a residential tower or group of units, adding to supply of that property type in this location.
So this thinking leads us to suggest that even though a unit in this location will likely be snapped up, a house might be closer to the pot of gold, netting you a higher return and potential more reliable, long-term rental agreement.
It is worth noting here though that, population growth in areas like this can certainly mean that an apartment is indeed a great investment and will likely be in high demand. Again, we shouldn’t consider this in isolation, your due diligence needs to include all aspects of the property you’re considering.
One such factor is buyer-demand.
This refers to the pool of potential buyers that are looking to own a property in this specific location (and can afford to do so).
Your ace of spades is ideally in a place where buyer demand SUBSTANTIALLY exceeds the supply available. There might be ten buyers for every single seller in these situations, and although that’ll make the purchase competitive, it will likely be worth it in the long run. Why? It’s likely this imbalance will mean property prices in the area can withstand changes in supply or demand from external factors. Things like a new development adding 20 units to the area, pushing up supply or even economic pressures causing demand to reduce.
Then comes diversified demand.
So the property in question is appealing to you, but what other kinds of buyers might be interested if you’re to sell later (or even to be in competition with)? You want this property to be appealing to a diversified pool of buyers from retirees, owner-occupiers looking to upgrade, other investors and so on.
Considering the diversity of buyer types on your property will ensure demand is sustained and isn’t just pigeon-holed to first-time investors or another group of buyers.
You want earners.
This might sound strange, but your ace of spades should attract higher-income earners and people on the wealthier end of the financial scale.
As an example, if your investment attracts the wealthiest 20% of Aussies, then it’s far more likely that buyers will continue to drive up prices through their ability to afford those higher prices over time.
There’s a stack of factors that drive demand and they’re not always the same.
Understanding the specifics to the location(s) you’re looking at will help you find the right factors driving demand. This ultimately helps you make the informed decision you should be making, so let’s quickly touch on some of the most common factors that drive demand:
- Employment opportunities
Although working from home has become a real thing since COVID hit, there’s always going to be better employment options (especially for higher-earners), closer to capital cities.
Supermarkets, doctors, public transport (not too close to railway etc of course), schools, parks, waterways, sporting facilities can all contribute to the desirability of a specific location.
- Community & Culture
Not just museums and entertainment venues, but shopping strips and business hubs can create a great community scenario that is super
The golden rule – “Quality” – isn’t always responsible for driving returns in the short time – especially where popularity plays a part as it has in recent years, but investing is a long term game and that’s the way to build meaningful wealth with your investment.
Don’t get caught up in the short term game unless there’s a good reason to make that part of your strategy.
Don’t underestimate the factors that make a quality property – if you get your ace of spades by making the right, informed choices, you’ll be sitting pretty.
If you’re looking for your ace of spades, speak with the @Finance team today, our experience and knowledge of property markets, investment structure and of course finance, could make all the difference to your future.