Why is “Location” an important factor when purchasing an investment property.
There are many factors and considerations when buying a home but location should be your first. When speaking to any Buyers Agent the first criteria they ask their clients is “Where would you like to live” or “what is your budget”, which is just code for “Where can you afford to live”. Location is always the number 1 preference not price. Price simply limits their choice of location. Location is such a big factor that if considered correctly it will protect and boost your homes value and if ignored can compound the effects of receding markets or increase the risk of losing your savings.
To properly assess locations when buying we must first understand the value of a location.
One of the major challenges we face when looking for a property for a client is Perception vs Value. Value is what we, as experts, or impartial researchers attribute to a location and comprises all values added together to form a holistic picture, as opposed to perception being a buyer’s attributed emotional value based on assumptions or part facts.
These two values are not always different but buyers must understand why a location is unemotionally or intrinsically valuable to properly predict its growth or measure risk and this is why buyers should consider expert help when purchasing any property, especially when purchasing an investment property for long or medium term returns.
Location to transport.
You’ve no doubt heard someone say you have to buy an investment property near public transport. A solid statement which, to most, seems hard to argue with. But have you thought about the type of tenant you will be looking to get in your rental property? If your main tenant will be young people, low-income earners, or the elderly then yes you would want to buy near public transport. But being right next to a bus stop or train station will not always improve your returns if you are after a higher class of tenant.
If you have purchased a property in a high growth area with established services, good schools and a predominately high socioeconomic demographic you will have little need for public transport ( Your tenants will have cars!) and in fact being close to public transport pickup points could depreciate your values. This is a perfect example of one of many “golden rules” that can be a trap for would-be investors if they follow it without paying attention to the context. Always make sure your investment meets the requirements of the most active, and interested buyers/renters.
A HUGE factor to consider when choosing a location is any proposed, endorsed or imminent changes to the local town planning scheme. This not only affects investors but also first or subsequent home buyers. If you buy an ocean view block of land in an area going through rezoning are you sure you can, or will still be able to, construct a home capable of capitalising on this feature? If you buy into a quiet suburb on a leafy street are you sure there wont be apartments going up over the rd or a shopping centre being built in a newly rezoned “Leafy Street Commercial District”? These changes are not always bad. A savy investor or someone will expert help will know exactly whats coming and be able to use it to their advantage. Buying into an area going through rezoning could boost capital growth if the area is planned for an upgrade or could allow the implementation of some great Value Add Strategies to supercharge your medium to long term investment goals. All of the information must be gathered before making a decision allowing you to ensure what you’re buying meets your individual needs.
Stay Close! Your deposit depends on it. (Attn First Home Buyers)
Location Value or Intrinsic Value smooths out the edges of the up and down cycle. Good Location Value keeps demand up and properties turning over which steadies prices and weakens the impacts of receding and rising markets. Bad Location Value causes large fluctuations in re-sale prices as low demand can sometimes become negative demand and then its a race to see which distressed seller can sell their property for less or be stuck holding it. Some first home buyers who have scraped together 50k-100k for a deposit have lost this money within the first 5 years of owning their home if they bought in a bad location during a receding market(and you cant always wait until the market turns to buy a property). They may not even be aware of it until they go to buy their next home or renegotiate their mortgage and find out instead of a 20% deposit they have only a 5-10% deposit and the bank in fact wants more money from them in order to mortgage the home. The Market does NOT always go up everywhere and when its going down its important to ensure your not compounding this issue with a bad location. By the same token Good locations are allowing first home buyers to buy their second homes with larger deposits then they started with or protecting them against the dips in the market and allowing them to capitalise on opportunities that arise.
How to spot good locations
Research, Research, Research. There are no golden rules and each and every location is different with pros and cons to be considered. Asking for help from an expert is the easiest way to avoid mistakes as we can tell you everything from the zoning changes to the long term growth prospects but if you’re doing it alone make sure to work with areas you are familiar with or become familiar with and take the time to source something in an ideal Location not just for a lower price.