Making money from property investing does come from having the knowledge of what, where and when to buy. However if you never put any of that knowledge into practice, you’ll never make any money. So whilst I do believe in learning and educating yourself about the ins and outs of property investing as much as you can, don’t procrastinate or let yourself get analysis paralysis. At some point you need to take action, and what better time than 2014!
What to look for when picking a great investment in 2014?
1) Do your research
Read up on Residex, RPData, SQM Research and APM as to what research companies think of the various states to buy in. If your state isn’t predicted to grow as much as another state, consider buying interstate, even if you don’t have as much local knowledge there. Although you may not buy the absolute best property due to your lack of knowledge in the area, often even a slightly badly bought property in a hot area will make more money than if you were to buy locally.
2) Location, location, location!
It’s essential that you buy in the best location you can, and that you value the location of the property over other qualities. While the property may be a bit run down, you can always upgrade at a later date when you have more cash, however you can’t physically move it to a better location.
3) Consider the suburb before choosing between a house and a unit
Buy around the median price for whatever that gets you in the suburb, which will most likely be a unit in Sydney and Melbourne and a house elsewhere. They say houses appreciate and buildings depreciate so always buy a house, however in the best suburbs a house costs $1-2 million and the rent returns are shockingly low. A unit in a top suburb can easily outperform a house five times the size, but much further out.
4) Stop searching for the ‘bargain’ property
In a fast moving property market, paying retail (full price) today can be the same as buying wholesale (cheap) tomorrow as it may well take you many months to find that bargain and in that time, the whole market has moved upwards. It also goes for renovations; I would prefer to buy a property with no renovation potential today rather than a renovator’s delight in 3 months time, as the profit has already disappeared in the higher price you’ve just paid.
5) Focus on what the potential tenants want
See at least 50-100 properties in the area as you need to build up your local knowledge in order to recognize what the ideal property looks like, and how much it’s worth paying for it. You need to take your emotions out of it and concentrate on what the banks are likely to lend and on what the property manager says the tenants want. For example, you might consider an 80sqm unit small, but 20-30 years olds in the area may find that normal. And you personally might prefer a massive kitchen, however the tenants may prefer a bigger living area as they often eat out.
6) Make friends with the agents
Get to know the local agents as they’re the difference between getting a deal and losing a deal. Often price isn’t the only factor when it comes to securing a property, so if you can make quick decisions and do what you say you’re going to do, you might settle the deal.
7) Seek help from professionals
Consider hiring a professional buyer’s agent to help you find and negotiate the best deal. Sellers have hired professionals for hundreds of years to sell their properties for the best possible price and now more buyers are doing the same. Not only can a buyer’s agent often find you a property that hasn’t even hit the market yet, they negotiate properties all day, every day and therefore will often save you more than they cost you.
What should investors expect from the market in 2014?
Remember that there isn’t just one property market, there’s many and it all depends on the suburb, street and price point of the particular property you are looking to buy or sell. One market can be up 20% while another could be down 10%. From all the industry insiders that I’ve spoken to, the majority believe that what we have seen in 2013 is just the tip of the iceberg for the next property cycle which started the day after the election.
Property is still reasonably affordable compared to the past, given the low interest rates and 5-6 years of pent up demand from all the buyers that have been sitting on the sidelines since the Global Financial Crisis. They’ve all jumped in together and many are buying multiple properties now that they can see growth back in the market. A number of buyers got concerned that the market got over inflated after the election as there were, and continue to be, a number of properties selling for $50-100k or more over their reserve. However, there are still plenty of properties being traded at reasonable levels.
My personal thought is that properties under $1m around our capital cities will continue to be in short supply and high demand and this confidence and growth in prices will spread to more properties in the blue chip suburbs and the more affordable properties in regional areas.
What are the top five suburbs to invest in 2014?
I’m a fan of mainly buying in Sydney and Melbourne as both cities have a limited supply of available land to build in the inner city, especially where there are height restrictions. There is also on going demand from buyers and renters who want to live in Sydney and Melbourne as well as plenty of industries supporting the areas, therefore if there’s a change in mining/tourism/terrorism/exchange rates there are plenty of other industries supporting local workers.
Melbourne had a good growth spurt in 2010 and so many research companies are tipping Sydney over Melbourne over the next few years. I prefer to go for the guarantee of the already established blue chip suburbs that have more consistent growth over trying to hotspot the latest greatest suburbs that may or may not perform as predicted. Therefore my tips are as follows:
1) Bondi Beach
It’s world famous for a reason, and there’s thousands of young, affluent Australians and long staying people from overseas that will pay any price to live near the beach.
2) Coogee Beach
Not everyone likes the busyness of Bondi and so Coogee attracts a different demographic of inner city workers and beach lovers that like more of a village life.
With such amazing views of the city and harbor, Kirribilli has always been a favorite of the affluent city worker that can wander across the bridge from work. Although there are more high rises there and parking is scarce, once you have found a unit that ticks the boxes it will always be in demand
Another popular suburb with professionals in the north that want the blend of harbor, peace and quiet but easy access to the city, cafes and shops.
Whilst many Sydney-siders are arguing whether north or east is best, the others go inner west for a completely different lifestyle, still with easy access to the harbor ferries and the city.