Investment Property, Best Location

Think of location and property, and comments such as "it's a block from the beach", "there's a school within walking distance", or "the train station is two blocks away" probably come to mind. That's because a person looking for a place to live typically has these considerations at the front of their mind.

As a property investor you also need to consider location in these terms, because your prospective tenants and most of your future potential buyers, owner-occupiers, will care about these things too.

Essentially though, an investor needs to consider location on a higher, more strategic level. In residential property investment, location matters in terms of what it means to the market a prospective property is in.

What do we mean by this? If you're thinking about buying an investment property, consider the location in terms of finding the right market to invest in, because essentially real estate markets are defined by specific geographical areas.

Let's say your recently purchased investment property is a duck, floating on a pond, and that pond is the suburb you've bought in. As it rains and more water enters the pond, the water line rises, and so does the duck. Just as house prices overall in your suburb rise, so does the value of your house. Gains in real estate investment are about the water line rising in your pond, in other words, what the specific market you're in is doing.

It's imperative to realise, that the so-called 'Australian property market' is actually made up of hundreds of sub-markets. It's much easier for the media to refer to the 'Australian property market' as though it is one entity, but as investors this has no relevance. The notion that there's one big Australian property market that follows a certain path is a fallacy.

There is also no single New South Wales property market, or Victorian market or WA market. Because within each of these areas there are a multitude of markets which all behave very differently.

Looking at recent trends, you could argue that there is no Sydney market either. Rather, there's an Eastern Suburbs market and there's a Parramatta market, and even within each of these suburbs there can be huge discrepancies. For example, within the Eastern Suburbs, the way Bellevue Hill and Vaucluse behave is very different to the way Randwick or Maroubra behaves. In some cases even within a suburb there can be significant discrepancies, for example within Bellevue Hill you will find differences in how specific streets perform.

Keep in mind that this is a very extreme example, and looking at a suburb in most cases is what an investor needs to consider in terms of market specifics.

The important thing for an investor to consider is to make sure the specific market you're in is a good healthy vibrant market because if it rises, even if you've got some other decisions wrong, you're going to be dragged along with that specific market's overall performance.

You can buy junk in a rising market, and everything just goes up. Ten years ago if you'd bought junk in the Eastern Suburbs, you'd be sitting on some very expensive junk today. (We're not advocating buying junky property; we're only suggesting that the first consideration is the specific market your property is located in).

So deciding if it's Sydney or Brisbane, that's only the start of the decision-making. As an investor, when you buy in a specific location you are essentially buying into a specific market. Pay attention to how close a prospective investment is to basic amenities, but more importantly, focus on which specific market the property is located it in, and what that market is doing, which brings us to the next consideration: timing.