When it comes to property investing, there’s more to consider than just rental yields or the assumption that certain types of properties perform better than others. Many investors fall into traps set by myths—such as the idea that capital cities are always safer, that new builds are better because of tax benefits, or that high rental returns alone make a property a solid investment. In reality, a great investment is about leveraging data, understanding market trends, and buying the right property at the right time and price. Let’s break it down.
Using Data to Find the Right Market
To identify promising investment locations, you need to consider both micro and macro data:
- Micro data focuses on the local property market:
- Days on Market (DOM): Fast sales indicate strong demand.
- Inventory levels: A limited number of properties paired with high demand creates upward pressure on prices.
- Local trends: Watch for consistently rising prices, as this shows steady market growth.
- Macro data looks at the broader economic context:
- Population growth: More people moving to an area increases demand for housing.
- Economic conditions: Interest rates and inflation affect the cost of borrowing and, ultimately, demand.
However, data only answers where to buy. The next challenge is what to buy—choosing a property that fits your investment strategy.
Short-Term Pressure vs. Long-Term Growth
Balancing short-term pressure and long-term growth is key to a successful property investment. Short-term pressure refers to markets or properties that offer immediate gains, such as a quick increase in property value. While this doesn’t eliminate the risk of a market downturn, having a property that experiences short-term capital growth adds an extra bit of “oomph”—a financial buffer that protects against a sudden market slowdown or dip in prices.
On the other hand, long-term growth is about identifying markets where stable economic factors—like population growth and infrastructure investment—support continuous appreciation over time. This long-term outlook reduces the risk of poor performance and ensures your property’s value increases steadily.
Buying Under Market Value: A Key Strategy
One of the best ways to reduce risk in any property investment is by buying under market value. Securing a property for less than its true worth in a market that’s poised for growth gives you immediate equity, making the property safer and more profitable from the start. This initial boost of equity provides an extra layer of security—think of it as that bit of “oomph” you need to offset short-term risks or potential dips in the market. If the market temporarily softens or stalls, you’ve already gained value through the purchase itself, reducing the chance of the property underperforming.
To dive deeper into why buying cheap doesn’t always guarantee success, check out this analysis on property risk and growth, which explores how immediate savings need to align with market trends to really pay off.
But how do you achieve this? It requires a combination of negotiation skills, understanding the local market, and leveraging data. By knowing the typical property prices in the area, you can identify opportunities where a seller might be willing to accept less than the property’s true value—perhaps due to urgency, less competition, or simply market timing. It’s also important to look for properties that might not present well in marketing but have underlying potential or are in areas with strong growth projections.
In a market with long-term growth potential, buying under market value ensures that you’re positioned to reap the rewards of capital appreciation sooner. The quicker you see that growth, the sooner you can leverage that equity for further investments or secure better financing terms. Immediate gains not only provide a financial cushion but also enhance your overall investment strategy, as you’re already ahead by the time the broader market catches up.
New vs. Established Areas: What’s Better?
A common debate among investors is whether to buy in a newly developed area or in an established suburb. While new estates can be enticing with shiny amenities and brand-new infrastructure, it’s important to think about supply vs. demand. Personally, I wouldn’t invest in a new estate where there’s an oversupply of properties. The constant addition of new housing reduces demand, making it harder for property prices to grow.
Established areas, on the other hand, often benefit from limited housing stock and a strong track record of capital growth. These neighborhoods typically have mature infrastructure, a stable population, and a history of price performance, making them a safer bet for long-term appreciation. Buying in established areas where supply is limited compared to demand is a smart way to ensure steady value growth.
New Builds vs. Older Properties: What Should You Buy?
There’s also an ongoing debate between new builds and older properties. Many investors are drawn to new properties because of the tax deductions they offer through depreciation. While these tax benefits are real, they often come at the cost of capital growth. New properties are frequently hyped up, and in many cases, their initial value is inflated. Over time, the property may depreciate faster than it appreciates, meaning the tax benefits may not compensate for the slower capital growth compared to an older, more established property.
If you’re considering a new build, it’s worth taking extra precautions—such as getting an external building and pest inspection to avoid hidden risks that could impact long-term returns.
In contrast, older properties tend to be located in more established areas where land value has already risen. While they might require more maintenance, they also offer opportunities for value-add renovations, which can boost both rental yield and resale value. Additionally, older properties are typically priced more realistically, offering better potential for growth.
Types of Builds: Does It Matter?
The type of build—whether it’s brick, fibro, weatherboard, or another material—doesn’t necessarily make or break an investment property. However, it’s important to choose a build type that aligns with the local market and the maintenance required. For instance, brick homes tend to have a higher perceived value in many areas due to their durability and low maintenance, but that doesn’t mean they always outperform other types of homes. Weatherboard houses, while requiring more upkeep, can offer charm and appeal in certain regions, especially if they’re located in a market that values character homes. Ultimately, choosing a build that is aligned with market demand, local trends, and tenant preferences will make the most difference.
Specific Street Locations: How Much Do They Matter?
Beyond choosing a suburb, the specific street location of a property plays a crucial role in its value and long-term performance. For example:
- Corner blocks often offer more land and dual-access potential, but they may come with downsides like higher traffic noise or security concerns.
- Main roads can have lower purchase prices due to traffic and noise, but these factors also reduce appeal for renters and future buyers, limiting growth potential.
- Cul-de-sacs and quieter residential streets typically attract more family buyers and renters, which could boost demand and long-term capital growth.
Considering how the specific street location affects demand and tenant appeal can help ensure you’re buying a property that performs well in the long run.
What Really Makes a Good Investment Property?
At the end of the day, a good investment property isn’t just about location, rental yield, or whether the property is new or old. The key factors are:
- Buying under market value in a growth area to gain instant equity.
- Balancing short-term pressure (immediate growth) with long-term stability.
- Focusing on supply vs. demand to choose areas where housing stock is limited and prices are steadily rising.
- Choosing properties with real potential for long-term appreciation, even if they don’t offer the highest rental returns immediately.
By understanding how to combine data with smart purchasing strategies, you can reduce the risk of overpaying or buying in an underperforming market. It’s about looking beyond the surface and making informed decisions that lead to both immediate gains and long-term success.
