Where should I buy my investment property?

For most investors, the question of where they should buy is given nowhere near the consideration it deserves.

Whether new or experienced, there is a tendency to simply look in areas near where the investor lives.

This is easy to understand; investors often feel they know the market in surrounding areas and like the idea of being able to drive past and see their property. Yet more often than not, that is the strategically flawed choice.

Anyone buying an investment property should consider two fundamental questions: where can I obtain the best yield, and where can I achieve the best capital gain.

Attracting the highest rental yield

Yields are determined by the income generated from the property and the expenses involved.

Higher rents are generally achieved in suburbs with strong tenant demand, typically within or near employment hubs, with access to major shopping centres, schools, entertainment precincts, beaches, or restaurants.

Strong demand results in higher rental income and minimal vacancy. Investors should also carefully consider expenses such as council rates, which vary by council, insurance premiums, which can differ by postcode due to localised risks, and body corporate levies, which need close examination.

A low levy may be a trap if a high special levy is looming, while a higher levy can ensure the property is well maintained, helping secure premium rent.

Unsung emerging capital growth markets

Established markets are often attractive to investors, but they may not deliver the same rate of capital growth as emerging markets.

Emerging markets, even in newly developed estates, often have not fully established themselves.

The best emerging opportunities are in areas with an existing employment hub, the necessary infrastructure, and lifestyle amenities, yet they may be overlooked while the market focuses on other suburbs.

It is not unusual for one suburb to be “hot” with strong price growth while neighbouring suburbs lag behind, creating a potential opportunity. At some point, the market often recognises the value in these overlooked “bridesmaid suburbs”, driving a sudden switch in attention and increased buying demand.

In short, while buying locally may be convenient, investors seeking to maximise returns should look beyond their immediate area, which may include other parts of their state or even other states.

Strategic consideration of yield, expenses, and capital growth, along with careful selection of location, is the key to long-term investment success.