When working with our members to select suitable investment properties, we always begin with their long-term vision and goals. That way we understand which properties are going to suit the investor and in which order they should be purchased. We have an important checklist of factors and criteria that we go through to ensure that each property suits the investor and will fit into their long-term plan.
Below is a summary of some of the factors that we consider when selecting a property for investment purposes, segmented into the four main categories: Investor Specific, Macroeconomic, Supply and Demand and finally Property-Specific factors.
1. Investor Specific Factors
First, we must understand why you are investing, and what it is you are wanting to achieve. Then we look at factors such as your current financial situation, your beliefs and experiences around investing, your risk vs reward tolerance and the number of years you have set to achieve your goals.
Once we know what kind of investor you want to be and what you want to achieve, together we will have a better idea of how to start. For example, someone on a relatively high income, and a diversified portfolio may be looking to secure just one property that will help them reduce their taxable income, and cash flow considerations may not be as important to them.
Alternatively, a young investor with plans to build a portfolio of multiple properties over 25 years may need to look at more affordable properties with higher cash flow prospects, to begin with.
2. Macroeconomic Factors
Think of macroeconomics as the study of how all the pieces of the economic machinery work together to create economic growth. Again, we start with the end in mind to understand the big picture, and then we work our way down to deeper and deeper levels. So, we take a macro to micro approach. Our system starts with global factors then dives down the line to national, state, local government area, suburb, street and finally the property level research.
Macroeconomic factors that we are looking for include strong population growth, job growth, existing infrastructure and planned infrastructure.
As a rule, the closer and the better the infrastructure is (e.g. transport links, schools, shops, hospitals, etc.) the greater likelihood of steady growth and demand.
3. Supply and Demand
Next, we use data to help us analyze the property fundamentals for the markets and areas we have identified in our prior research. This analysis helps us pinpoint the key drivers of property price movement and the underlying emotional factors that encourage people to want to buy or invest in those areas.
A couple of the many indicators we look at when assessing an area’s level of supply and demand are Stock on Market and Vacancy Rates.
Stock on Market refers to the number of properties for sale in an area compared to the total number of properties in that area. A low stock on market percentage may indicate that there is more demand than supply, hence not many properties in that area are for sale.
Vacancy Rates measure how many properties remain unlet at any point in time. A Vacancy Rate of 3% is considered a balanced market. A Vacancy Rate below 3% generally indicates demand is greater than supply. Conversely, a vacancy rate above 3% may indicate supply exceeds the underlying demand for those properties.
4. Property Specific Factors
The last thing we usually look at when negotiating and securing your next investment is the property itself.
Elements we look for in a specific property include the desirability and suitability of that particular property type to the area. We would also consider factors such as car parking, build quality, storage, standard fixtures and fittings, services connected to the property, and other factors that would increase the desirability and rent appeal of the property.
We then consider the individual deal. What inclusions, favourable terms or discounts can we negotiate for you?
While type, location and unique features of any property are important, it is vital to cover the other three pillars of successful investing first as this will ensure we get the very best results from the hard earned capital and energy that we spend building our property portfolios.
If you agree that carefully planning of your portfolio, making strategic property selections, and working with a team of experts to help you achieve your goals and ultimately create better results for you, then be sure to schedule a call with our team today.