Investing in the right location is critical because 80 per cent of the long term performance of your investment property occurs, because of location and 20 per cent is related to the property itself.
Strong Capital growth at the moment is not necessarily assured because we are in a mature stage of the property cycle, so in the meantime, investors can increase their yield and accelerate capital growth; by undertaking renovations that will manufacture growth, increase rental income and maximize depreciation allowances.
Investing in a location that outperforms the averages, because of a strong local economy, will safeguard your property against cyclical price fluctuations.
Look at buying in areas where wages are growing above the average.
Demographics is one of the biggest factors that determines capital growth, so avoid blue collar areas, as wage growth tends to be capped to the CPI, unless they are well into the process of gentrification.
To ensure that the property you find is indeed “investment grade” consider the following points:
- A property that appeals to owner occupiers- because owner occupiers will buy similar properties in the area and push up local values
- Avoid new and off the plan properties that come at a premium
- Properties with high land to asset ratio
- In an area with a long history of strong capital growth
- Properties with character and unique features
- A property in which capital growth can be manufactured through refurbishment or redevelopment.
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