“I wrote this a little while back, but it still stands true and offers some great tips for locating your ideal investment property.”
The first step you need to take is to create a shortlist of locations that you are considering. The mistake that most investors make is that they fail to properly plan their property search. As a result they enter a fox-like process, whereby they try to absorb information about potential investments from each and every source available.
They read newspaper headlines and magazine articles. They browse real estate shop windows, and view property sales online. They end up knowing a little bit about a lot of different real estate locations instead of knowing a lot about two or three locations. Because they don’t do enough detailed research on a few locations, they can end up buying the wrong property in the wrong location, or they pay too much for it.
Instead of this, I suggest that you adopt a hedgehog approach to your research. The hedgehog limits his final shortlist to no more than three locations, so you can really knuckle down and become an expert in those particular areas.
The first step in being a hedgehog researcher is to choose which state you want to invest in. A lot of people default to their own home state, but that’s not always going to be the best and most effective property investing choice.
Properties in different states can experience a significant variance in capital growth rates due to a range of factors, not least of which is supply and demand.
Some states simply don’t have enough housing to cope with the level of new residents arriving each month. This means that the housing that is available is highly sought-after. If an area is experiencing high population growth, and at the same time there aren’t enough new houses being built to accommodate the growing population, then that’s going to translate into rapidly increasing property prices and higher yields.
Supply and demand is not the only factor that you need to take into consideration when doing your property research. Generally, the most important factors that you will need to consider include the health of the local economy, population growth, private investment in industry and housing, and government spending on infrastructure, housing and employment.
You can learn most of what you need to know about what’s happening in various states through the magic of the internet (what did we do before it?).
By browsing internet sites you can learn all about government plans for growth and development in different regions. You will find updates and fact sheets about new infrastructure projects and information about upcoming large-scale projects that will inject money, resources and employment opportunities into local communities.
You can also access data about population growth across the state, so you can see which areas are experiencing the highest influx of new residents, and thus, which has the largest potential rental pool for you to tap into.
Plug each of these websites into your ‘bookmarks’ folder and spend some time really studying each state. I’d recommend at least one to two hours per site, so you can learn about all of the different projects and plans for the short and long term.
Don’t forget land tax, an annual charge levied by most state governments. The amount charged varies from state to state, but it is usually charged as a percentage of the current unimproved land value. The more land you own the more land tax you will pay, so you will need to cost payment of this tax into your budget.
One benefit of townhouses and units is that they occupy less land, which makes them more attractive from a land tax perspective.
Fine-tuning your search
At this point, you should now have selected the state that you are interested in investing in. The next step is to locate the city or town that you want to invest your money into.
This is where you need to put your buying rules into action, so you can match your investing strategy goals to the ideal location.
For instance, do you want to invest in a regional town or a capital city? This will depend on your budget and also your investment strategy. If a high quality property yielding strong capital growth is the aim of your game, and you have a decent amount of money to play with, narrow your focus to the capital cities. If high yields and positive cash flows are your priority, go regional.
If you opt for a capital city investment, do you want a city residence, a suburban house, or a coastal property?
If you’re going regional, do you want a major regional centre with several employment nodes that drive the town’s economy, or do you want to invest in a mining town?
Consider your tenants. Do you plan to rent to students, young families, professional couples or retirees?
Depending on your answer, should you then look for property that is located near schools, hospitals and/or universities?
As you begin to work through all of these questions, you may begin suffering from information overload. This is when investors will be tempted to skip these steps and invest in that suburb that their brother/ cousin/ workmate/ hairdresser/ accountant told them about. Don’t be discouraged! If you put the hard yards in now, you’ll put yourself in a position to enjoy enormous financial rewards in the long term.