As an investor, it is important to be well-equipped with the necessary knowledge to avoid making bad investment decisions or risking your long-term financial goals. Here are a few key indicators you should know before investing. Let us look at it with a few examples.
Example 1 – Brand New Townhouse
- 2 levels, 3 bedrooms, 1 to 2 car garage spaces.
- Very nice layout, luxury design
- Land size is 170m2
- Complex is only 30 townhomes across the road from a leafy green park
- Low body corporate, just a gym in the complex
- Asking price is high $500,000 to low $600,000
When we look at the design, layout and distance of the townhouse from the CBD, it is perfect. We also see that there is a large number of infrastructures developed in the area that will impact capital in the long term. This is another key indicator of a good property.
However, after checking on the houses already established in the area, we noticed there are 3 and 4 bedroom houses from off the market sales and these houses have a minimum of 600m2 land size. If you were to compare this to the townhouse with 170m2 land size, this is a huge difference and can be an issue especially when the houses are still in good condition.
When we look at the average pricing, houses in the same area are priced between low $600,000 and high $600,000, which leads to another concern.
If a good house is priced at $650,000, it should be 20% to 50% more expensive than the townhouses within the area. However, this is not the case for the houses here. In fact, the houses are priced slightly more expensive than the townhouses, despite having more land size.
In other words, the townhouse will face a high equity risk and as an investor, you will not see any dollar increase in the long term – approximately 15 to 20 years, if not more.
Example 2 – Apartment in Chermside, Queensland
The price of the apartments at Chermside, Queensland change rapidly. However, the median price is $397,000, which is close to half of the asking price from the developer. If you are considering to invest in this property, bear in mind this is considered a high settlement risk.
Example 3 – High Supply
Sometimes choosing to purchase a property in an area with a high supply of different types of properties may not work in your favour. Due to the high supply of properties and cheaper units to choose from, there is a tendency for the vacancy rate to increase, despite the properties having high rental yields. Investors may face weeks or even months with no tenants.
In major areas across Australia, there is a huge problem with oversupply. So it is best to do your due diligence before making any investments.
Example 4 – Land Size
Once you have found potential houses to invest in, land size becomes a key indicator in determining which would be the better house.
Option 1
- New or renovated house
- Garden divided into 60% at the front and 40% at the back
Option 2
- Old house
- Garden divided into 80% at the back
In this case, option 2 is the clear winner, especially if you are targeting large families or a higher number of tenants.
Example 5 – Floor Plans
When we compare between floor plans, owners, in particular, will prefer the low level to be the entry, kitchen, living and garden, whereas the second level has all the bedrooms.
Investors need to know that some modern or old plans put one master bedroom or one children bedroom on the first floor. Since parents generally prefer to sleep with their children on the same floor, this particular point will change the price and the growth value of that particular property.
Example 5 – Investing in Off The Plan or New Properties
Whether you intend to invest in off the plan or new properties, you need to understand what you are doing and be able to choose the right property.
Investing in one or two for the long term is recommended. However, if you intend to go for more than that, it will eliminate your chances to grow equity realistically. For seasoned investors, a good investment is classified as being able to make profits within a realistic time frame, and the sooner that can be achieved, the better it is.
Obviously, there are other key indicators to help investors to choose between properties, such as identifying the risk factors and knowing how much do you want to make in the short to medium term. The ones I mentioned here are just a handful that can help you to understand the property scene better and seal a good deal. When in doubt, look for a professional for professional advice.