The four crucial factors that will deliver property investment success

It’s crucial to ensure you have the right strategy in place to achieve successful property outcomes in 2024 and beyond.

Australian residential property continues to be a long-term high performing asset class for Australians, however, getting it right in the first place and getting above average results is an absolute necessity to the success of your property portfolio.

As the economic landscape shifts, it is crucial to analyse the many key factors that will help ensure you make sound property investment decisions.

We have experienced 13 rate rises from the Reserve Bank of Australia (RBA) since May 2022, which has resulted in the cash rate increasing from 0.10 per cent to 4.35 per cent.

Due to these interest rate increases, some investors have shifted their strategy to target high-yielding properties in regional locations.

The risk here is that investors may be investing with a short-term mindset and not exploring all relevant factors.

Sophisticated investors invest with a 15 to 20-year horizon.

Casey Taylor, Managing Director and Buyer’s Agent, Taylored Property Wealth, details the four top factors prospective investors must analyse before making an investment decision:

1. The right city, LGA, suburb and pocket

You can never perfectly time the property cycle/market; you can, however, gain an understanding of where each market is at within its cycle and make more educated property investment decisions.

i. City

You must always first start out with the macro level when investing.

That means first selecting the city you will be targeting based on the holistic factors/indicators, budget, yield target. Understanding where each city is at within its growth cycle is important.

ii. Local Government Area/suburb

Once you know the city you want to target it’s then a matter of understanding the local government area you want to target within the city.

iii. Pocket of a suburb

You can purchase two properties in the same suburb and can get two completely different quality properties.

As the saying goes, you want the worst house in the best street.

You want the high-quality pocket of a suburb, not the low-quality pocket of the suburb.

Your due diligence on an individual property level is going to be key to ensuring long term that the property has high desirability for a revaluation, sale or tenant perspective.

Skip this important step and you’re selling yourself short.

2. Local economies

Analysing industry sector of employment in a city and local government area is super important.

One area solely reliant on just one industry is high risk, whereas an area with many different industries will reduce your risk as an investor.

In an area solely reliant on one industry, if that industry slows, it can affect the main income of that population centre and this will affect property prices through decreased borrowing capacity, compared to a more resilient area with a diversified economy.

In that case, if one industry goes backwards, there are many other industries to support income and borrowing capacity.

This factor alone will help reduce large price swings or corrections, which is always advantageous as a long-term investor.

3. Building approvals

Building approvals are directly related to supply and demand of an area.

High supply with low demand equates to stagnation of capital growth. Low supply with high demand equals scarcity and capital growth.

If an area has high building approvals, that is direct supply being added to an area and this is deemed high risk.

In established areas where further land release is limited this is less likely, whereas within new greenfield estates an abundance of land and building approvals will be added and reduce scarcity and demand.

As a property investor you want to reduce/mitigate your risk and analysing and understanding building approvals is obligatory.

4. Local income vs property prices (affordability)

Analysis of the average income levels of a city, local government area or suburb is super important, especially when interest rates having risen 13 times since May 2022.

Property prices simply can’t keep rising if borrowers can’t afford to borrow the money to purchase.

Clear analysis of income levels and employment rates will help identify if an area has the room for further growth.

We expect to see markets such as Sydney, where they are closer to their collective borrowing capacity ceiling, have more listings come to the market this year.

Meanwhile, Brisbane, Adelaide and Perth continue to perform due to their relative affordability.

Prices cannot continue to rise without the income and borrowing capacity to support it.

Research for results

There are many more factors and indicators that you want to look at before purchasing a property investment in 2024.

Purchasing property is one of the largest transactions you will make in your lifetime and getting each step right is essential.

Taking the time to complete the research required will dramatically change your future.