What Makes a Great Investment Property?

April 11, 2014

Matt Richardson

There are many theories as to what makes a great property investment.  Different investors and different property “experts” all have their theories as to what makes a great choice of investment property, some of which include:

• It must have a significant land component because land appreciates and buildings depreciate;
• It must have at least one car park;
• It must be new to maximise the depreciation and capital allowance tax deductions;
• It must be in an area where at least 70% of the home owners are owner occupiers;
• It must generate a gross rental yield of 5.5%pa;
• And so on

There has also been a long standing thought from many in the property industry that the greatest returns can only come from investments within a 10km radius of the CBD in a capital city.

Terry Ryder is the author of a property research website called Hotspotting.  His views on the property research industry are widely sought after by investors because they are based on significant amounts of data.  In other words, he has a great ability to filter the “noise” from the facts.

Ryder rejects the notion of property investing only being successful with purchases close to a suburban CBD. In fact he thinks those expert “advisers” who recommend CBD property (or close to the CBD property) are downright lazy and basing their recommendations on nothing other than an easy theory .  Whilst there is no doubt that there is a great demand for property close to the CBD, the facts continue to show that consistent long-term capital growth is best achieved a long way from the tall buildings in the middle of a city!

Ryder cites 5 important factors investors should be looking for when choosing an appropriate investment property location:

1. Jobs “nodes” – the property experts sometimes forget that the majority of a cities population does not work in the CBD.  The location of warehouses, factories, maintenance facilities, airports, hospitals, schools etc are out in the suburbs and people like to live close to their place of work.
2. Commuter train links – Hotspotting research conclusively shows that the rate of capital growth is higher in “train suburbs” than in “non-train suburbs”.  Train suburbs are found away from the CBD.
3. Education “nodes” – institutions such as universities and hospitals generate a great demand for accommodation.  Suburbs around these facilities will have extremely low vacancy rates.
4. Major shopping facilities – this is an extremely important requirement, as accessibility to an affordable range of shopping is important, even in regional areas.
5. Proximity to schools – for some people this is the number 1 factor in deciding where to live….and most schools are found a long way from the CBD.

So why are these factors more important than living close to the CBD?  Because of AFFORDABILITY.  Affordability is the greatest driver of demand for property, regardless of the beautiful and expensive properties which are within 5 kms of the CBD.

If you wish to increase your property education “intelligence” then Google the website Hotspotting (www.hotspotting.com.au) and Terry Ryder.  Subscribe to his free email service and you will quickly find out what is important in real estate investing.  You might even pay for some of his great value-for-money research reports.  This will be some of the best investing you will ever do.

If you have questions about property investment, please contact the team at Green Taylor Partners and we will help point you in the right direction.

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