Choose the best location for a property – Buyers Agents Sydney
There are 10 things that I want you to consider before choosing the best location to buy a property in. And the first thing is, are you an investor or an owner-occupier. Most owner-occupiers are faced with a common property dilemma, whether to compromise on the property or the location, because most of us can’t quite afford what we want. I’d suggest that you start by looking in your preferred suburb first, see what your money can buy, and if you don’t like what you see, start fanning out one suburb at a time. Now, if you’re an investor, these next nine steps are for you.
Two, the question would-be property investors often ask is where is the next hotspot. But I wanna warn you that this is dangerous. Once a hotspot is common knowledge, the best opportunity for growth has already passed, and the thing about hotspots is that after they go up, they also go down. So the worst outcome would be to buy at the peak, and then have to ride out an entire cycle before you see any growth.
The third thing to consider, it’s important to avoid risk. There are many reasons why property is risky. One is that you can easily lose money if you don’t know what you’re doing. Property is a lumpy asset, meaning you can’t easily sell it. You certainly can’t sell a bit of it if you need some cash. You’re either in or out, and the costs of getting in and out are high, so before you start looking at locations, you need to take a moment to recognise the risks.
Now the fourth thing I want you to consider is that property is a long game. The costs associated with buying a property are around 5% of the purchase price, which means that you need to wait until prices have increased more than 5% before you break even. And when you sell, it’s going to cost you around 3% of the sale price. So if you buy and sell within a short period of time, you aren’t gonna make much money, if in fact you make any money at all.
Number five, the only exception to the last rule are flippers. If you’re in the business of buying to renovate and flip, you will need to understand short-term growth opportunities and get your timing spot on. Choosing a location that is expected to have an upswing in the next 12 to 24 months, will have an enormous impact on your bottom line.
Six, blue-chip areas don’t have cycles in the same way more volatile areas do. The least risky locations are within a 10 kilometre radius of the CBD of either Sydney or Melbourne. These suburbs possess the economic and lifestyle foundations that underpin sustained capital growth, and/or weather market downturns. Now, I’m not saying that you can’t get this sort of stability in other areas, it’s just that typically property owners in blue-chip suburbs are not under pressure to sell when the market slows down, and therefore, prices are less likely to fall.
Number seven, it’s different in non-blue-chip areas, because what goes up, will often go down. Otherwise known as the reverse ripple effect, when Buyers agent Sydney only look to buy in an area because that’s all they can afford, they’ll abandon that suburb when the market slows and go back to looking where they really wanted to buy in the first place. The fundamental economic principle of supply and demand will dictate that if there are more properties on the market then there are buyers, prices will fall.
Number eight, this leads me to one truism rarely spoken about, and that is that where you buy determines when you buy. In a blue-chip market, it doesn’t really matter when you buy as long as you buy a quality property. In a more volatile market, you’ll need to time your purchase and subsequent sale in order to avoid buying at the peak and selling in a trough.
The ninth thing I want you to think about is in an A-grade areas, a quality property will always find a buyer. In fact, we often see strong competition for good property even when auction clearance rates are under 60%.
And number ten, lastly, local knowledge is key. Does the property you want to buy pass the pub test. Once you’ve chosen a location, you wanna make sure that you are buying a property that locals like. Every market has its quirks, and if you aren’t familiar with the area in which you’ve decided to buy, you need to find out what appeals to a local buyer.
The 5 Factors of a ‘Good’ Location
- 1. Centrality
- 2. Neighborhood
- 3. Development
- 4. Lot Location
- 5. The House Itself
How do I choose a good location for my house?
The quality of local schools and the distance from the house are both important factors to consider. Finally, don’t forget safety. A neighborhood that has a low crime rate and is an inviting and safe place to be outdoors and commune with neighbors is the type of place where most people want to live
So many Australians are keen to secure their future by investing in real estate. We seem to think of it as less risky than most other investment options, including superannuation. Maybe this is because when markets go down, unlike shares, you can still see bricks and mortar, even if it’s worth less than what you paid for it.
The fact is that investing in property is highly risky, especially when you consider the in and out costs, the holding costs and the lack of liquidity. And if you don’t believe me, check out a report that CoreLogic RPData put out every quarter called the “Pain & Gain” report. According to this report, over the second quarter of 2015, more investors sold their property at a loss across Australia than owner occupiers. The amount of investors who sold at a loss was a staggering 11.9%!
What sort of risks are there in property investment?
I have met plenty of people over the past few years who have lost money in property. Here are some examples of how it happened:
- They bought off the plan and didn’t realize that they paid a premium for brand new. Five years later it’s still not worth what they paid for it.
- They bought in a mining town and got an amazing rental return for the first few years but didn’t foresee the mine closing and now they can neither rent it out nor sell it.
- They bought a tiny house in a sought after suburb for the price of a unit but got lower rent than they would for a unit and years down the track the units are selling for more than the little house is worth.
- They bought an interstate property with a guaranteed rental return and didn’t realize that this was factored into the sale price.
Property can be a fantastic way in which to secure your future. But you need to know what you are doing because the risks of getting it wrong are huge. Do not rely on popular wisdom, get advice! By that, I mean advice about your specific circumstances and I recommend starting with an independent financial planner. Real estate does not lend itself to making quick gains. There are too many costs associated with buying and selling, as well as tax issues to take into consideration. Are you happy to hold your investment property for the long-term? There is no fast track to real estate riches. It’s like that old fable called The Hare & The Tortoise. I know I am labouring the point here, but properties that are great for capital growth are like the tortoise that ends up winning the race. The only way, in my view, to minimize risk in property investment is to ensure that capital growth is your primary investment goal.
Once you have decided that it’s a good idea to buy an investment property you need to get advice from a mortgage broker about the sort of funds you have access to. Then you need to consider affordability. You have your current lifestyle to consider, as well as covering yourself for possible changes to your circumstances. Ask yourself some tough questions:
- Can you afford to cover the mortgage if interest rates go up by 2% and the property is vacant for two months?
- Can you afford to cover the mortgage at a rental yield of 2%? Once you work out your budget, the next step is to see what’s available for that budget. Location is the first thing to look at, then the actual property. More on that below, but the bottom line is that if you can’t afford to buy a QUALITY PROPERTY in a QUALITY SUBURB, then you can’t afford to buy an investment property. It sounds harsh, but anything else is simply too risky. You would be far better to go back to that financial planner and see what other investment options are available for you.
My preference for investment location is as follows:
- Within a 10km radius (ideally 5km) of either Sydney or Melbourne’s CBD
- Suburbs with a village or cafe/shopping strip that attracts people both day and night
- Good transport options
- Areas desirable amongst both owner-occupiers and tenants
I know these suburbs are expensive, but the reason I like them for investment is that people always want to live there because of the lifestyle. They are much less subject to market cycles than other suburbs/regions/cities and good property can grow in value even when prices are falling elsewhere in the same city. Bottom line: they are far LESS RISKY than other locations.
When considering a location for investment, ask these questions:
- Is the area cyclical?
- Does capital growth rely on buying (and selling) at the right time?
- Why would tenants want to live there? Just for work (risky) or because it’s a great place to live?
Once you have decided on your low risk location, you need to find out what most buyers are looking for in this area:
- Property characteristics (architectural style, apartment versus house, number of bedrooms, parking, etc)
- The most popular price range
In order to maximize capital growth potential you want to be looking for something that the largest proportion of local buyers are looking for. You don’t want to buy the smallest place in the suburb because when you go to sell, most buyers will want more than your place offers. The reverse applies when buying the biggest and best place in the area.
Does the property have things that tenants like?
- Air conditioning
- Easy to move into
- Close to shops and transport
- Consider a pet-friendly building
And don’t just think about tenants. Is it the sort of property that owner occupiers would like? These are the buyers who push prices up, not investors, so to ensure you get good price growth, don’t buy something that only appeals to investors.
Lastly, you will need to do due diligence in order to reduce the risk of costly repairs, maintenance or special levies:
- Does the apartment building have a history?
- Has the house been well maintained?
- Have you seen the property? Repeat after me: NEVER BUY SIGHT UNSEEN!
If you are buying an apartment or townhouse, get a strata report and look at how the building has been run to date and how healthy the finances are. BUYING BRAND NEW or OFF THE PLAN is RISKY! It’s risky for many reasons, and one big one is that there is no history on which to base your decision. Be wary of low strata levies. Sometimes past owners have voted to keep the levies down over many years, which may seem attractive at face value, however can result in hefty special levies down the track if the building ever needs significant repairs or improvements. Even a paint job can costs tens of thousands of dollars! When buying a house, get a building & pest inspection and make sure you discuss the report with the inspector. Ideally meet them at the property at the conclusion of their inspection for a walk-through. Ask what ongoing maintenance issues you are likely to have and how this property stacks up against others of a similar age and style.
If your intention is to renovate to add value, do you have the skills? If not, leave it to someone who does and buy something else.
Temptations & Traps TO Avoid
So many false dreams are being sold to hopeful new property investors by property spruikers, “investment specialists”, marketeers and “experts” sharing their “systems”. This is a real concern to me because the people that often fall the hardest are those who can least afford to lose. You need to develop a sixth sense so that you can sort out fact from fiction.
Here are a few things to be wary of:
- Does it sound too good to be true?
- High yield does not make a good investment as capital growth does not go hand in hand with big rental returns.
- Avoid promises of guaranteed returns by salespeople and property marketers.
- Beware of fads and bandwagons. Granny flats in western Sydney seem like a no brainer until everybody builds one and there’s an oversupply.
- It’s extremely rare to buy a well performing property for below market value. There is always plenty of crap property available at a “bargain” price. And, if the list above hasn’t sobered you up, please reconsider these tried and true risky strategies:
- Off the plan (so often sold for more than comparable existing property in the same neighbourhood)
- Mining towns (how many mum & dad investors have been burnt?)
- Hotspotting (by the time you find out about the next hot spot, the real money has already been made by those who discovered it)
If you have answered NO to any of the above, then I suggest looking into other, less risky, investment options. But if you can answer YES to all of the above then happy hunting!