Tips for choosing a good area to invest in
There’s a reason why real estate agents live by the well-worn phrase ‘location, location, location’ Sales are, after all, their bread and butter, and they understand that property prices and location go hand in hand when it comes to determining how quickly a property will sell.
As a first-time home buyer, do you know how to spot a good property investment from a bad one? If you don’t have much experience in shopping around for a suitable property, you might not know what to look for – or even where to look – to make a wise investment decision.
When buying a home in the best location, the two factors you’ll need to consider are your long term investment needs and lifestyle requirements. Once you have a good idea of why you are buying a property – to live in, rent out, or fix and flip – and how your situation and needs might change over time, you’ll have a better idea of where and what to buy.
Determine your investment needs
How will your property investment needs affect the area in which you eventually choose to invest? If you plan on buying a property to rent out, you’ll consider properties in areas that have greater appeal for the type of tenants you want to attract. Paying off a home loan is made easier if you can tenant your property quickly and put those rental payments to good use. Your property’s location will impact its ability to draw and retain the right tenants and, in turn, will determine its overall investment potential.
Let’s take students, for example: they like to live close to where they are studying, along safe transport routes, near to shops and other students. They’re also more willing to rent a room in an apartment, or house, while sharing living spaces with other tenants, to save on rent.
A new or established family, on the other hand, will want to live in a designated catchment area for good schools, close to arterial transport routes and amenities like hospitals, shopping centres and recreational facilities. They will be looking for bigger properties to rent in terms of number of bedrooms and bathrooms, off street parking bays, and the size of indoor and outdoor living spaces.
Individuals who have a thriving business or job in a city CBD might choose to live centrally to save on commuting times; and they’ll likely be willing to pay premium prices for a smaller property in exchange for this convenience.
The same ‘rules’ generally apply when house hunting for yourself: what are your needs and which neighbourhoods tick more of these boxes than not? With this knowledge, you can now start gathering information about the specific neighbourhoods you are looking to invest in.
- Is the area established or is it ‘up-and-coming’?
There are definite pros and cons when it comes to investing in property in a well-established part of town; the same is true of a property investment in a developing area. New developments in a neighbourhood can cause property prices to grow quite quickly and, if you buy into a developing neighbourhood, you could see you investment appreciating in value over a relatively short period of time.If demand in a particular area is high, supply is low and there is limited space for future developments, property prices will likely be high and stay high for that area. If demand is low, supply is high and there is ample space for more developments, you can expect to pay less.Zoning also has a large role to play in what you can and cannot do with an investment property. When house hunting in an older neighbourhood, for example, find out if there are any development restrictions for properties based on municipal zoning or heritage. You could discover your big plans to develop and renovate are impossible based on these restrictions.
- What are the house prices growth trends in the area?
There’s a saying that it is better to buy a small property in a good area, than a big property in a bad area. And location is important if you want your property to accumulate in value over time. However, you still need to be sure the property you buy meets your immediate needs, or that you can afford to renovate it to make it liveable for at least a few years if it’s your primary residence, so that it increases in value sufficiently to cover the purchase costs if you then decide to sell it.Do your homework and ask a real estate agent, or financial lender, for an overview of house price growth (or depreciation) for the areas in which you are looking to buy. If homes are depreciating in value in the neighbourhood, there may be a valid reason, and it might not be a good area to invest in for now.
- How safe is the neighbourhood?
Even if the properties in an area have high walls and electric fencing, this doesn’t necessarily mean it’s the safest neighbourhood to move yourself or tenants into. Find out how safe an area actually is by:
- Asking the local police department or real estate agents for crime statistics for the area.
- Speaking with neighbours about recent criminal activities, if any.
- Looking for evidence of a neighbourhood watch or security units patrolling the area.
- Visiting the area at different times of day to see what the neighbourhood’s general activity is like.The information you gather will influence whether you’ll need to put in extra security measures to keep your family or tenant’s safe or take out extra home owners insurance to cover yourself in the event of a break in or damage to property.
Don’t be Overwhelmed
It takes a fair amount of research and time to feel 100 % confident that you’re buying a home in the best location to meet your current investment needs. Download our Homebuyer’s Guide for first time buyers and property investors to help you prepare yourself for what’s ahead.BACK TO BLOG HOME>