Choosing an investment property? Location is paramount

Real estate is back on the radar of Australian investors.

But many still believe you can make good money from buying just any property.

Nothing could be further from the truth.

Investors should never lose sight of the fact that the ideal investment is an easy-to-maintain and attractive property for which there will always be strong tenant demand. An empty property brings no income.

One problem investors need to be aware of is that large and vastly different regions or suburbs are often lumped together for research purposes.

But of course average prices for metropolitan areas such as Sydney or Melbourne are relatively meaningless when you are choosing the actual suburb or area in which to invest. Individual suburb knowledge is vital in buying the right property at the right price.

General statistics about rentals and vacancy rates can also be misleading.

"We keep reading about how low residential vacancy rates are across much of the country. Ditto on how much rents have risen," says Michael Matusik.

But drilling down into Australia's 1600 postcodes, Matusik found 52% actually saw an increase in the number of dwellings available to rent last year.

And Matusik notes that several sub-measures of the rental market suggest rental growth is already slowing down. Tenants are also leading the "space for place" charge, says Matusik - sharing rentals and forgoing personal space to live near the action.

"Plus renters are leaving sub-par, even average digs, and relocating to better properties."

Investors need to realise that competition is fierce in rental markets, says Matusik, which makes the choice of an investment so critical to success.

And they also need to keep in mind that trends change. Do we really all aspire to the great Australian dream of a freestanding house on a large block of land?

As an alternative, younger generations are embracing medium-density apartment living, says property expert Michael Yardney.

"Rather than live in a house with a front and backyard, they're keen to live close to where they work and play, and they're happy to swap the backyard for a balcony.

"The fact is, the property investor of the future will be catering for a whole new breed of tenant and buyer," Yardney says.

He points out that many younger people are destined to live as tenants for quite some time. Like Matusik, Yardney says many will choose to live in shared accommodation so they can live where they favour but cannot afford as a buyer.

This will increase demand for near-city and inner-suburban apartments, particularly those in smaller boutique blocks with value-add potential through renovations, he says Other factors to consider when choosing an investment property are:

• Who are your likely tenants? If families, houses or townhouses may be preferred to apartments. But apartments are more the go for young professionals and dinks (double income, no kids).
• Nearby appropriate amenities such as parks, schools, cafes, entertainment and shopping.
• The ease and speed of access to work centres via car and public transport.
• The surroundings: avoid ugly, rundown areas as these lack tenant appeal.
• Do you want to add value immediately by redecorating and undertaking minor renovations such as reconfiguring the floor plan to include study nooks or ensuite bathrooms?
• The depreciation allowances available from the property. Newer properties generally yield bigger tax breaks.

Property Focus

"There are signs of a national property market turnaround in 2013," says major real estate agent John McGrath.

The autumn update of the McGrath Report says 24% more new home loans were processed in January 2013 compared with January 2012 by AFG, our biggest mortgage broker. This is a big jump in a key indicator of improving markets, says McGrath,

"Between 35% and 50% of new loans in NSW and Queensland are going to investors, who are driving a major restructure of our property market as first-home buyers retreat," says the report.

It points to a trifecta of cheap money, rising rents and price growth as bringing investors back into the market.

"Cash and term deposits are far less attractive and there's continuing strong interest in purchasing via self-managed super funds."

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