Six rules to buy financially rewarding residential property: Frank Valentic

The property market is constantly evolving and just like everything in this world, it has its fair share of ups and downs.

Given that only 10% of properties in Melbourne can be viewed as good investments, it can be difficult to choose one that will generate positive returns for you in the future.

However, the whole process doesn’t have to be hard work or stressful.  If you do your homework, purchase within your budget and get some handy advice along the way, you’ll be in a strong position to secure a financially rewarding property that will set you on the path to greater wealth.

Check out the following guidelines to help make buying your next ‘investment grade’ property a little easier.

1. Property size

It’s important to narrow down what you’re looking for and buy according to your budget. It’s fair to say, that a bigger property will always be a more solid and lucrative investment especially in terms of capital growth and financial returns.

Not only will it appeal to a larger demographic of buyers, it’ll be easier to sell because the demand for bigger homes is stronger.

The same rule applies with apartments. If you’re thinking of buying a small one bedroom or studio apartment, proceed with caution when applying for finance.

It’s not uncommon for banks to have lending restrictions in place for properties less than forty or fifty square metres in size. This is because smaller properties attract lower capital growth over the long term and are usually considered high-risk lending for most financial institutions.

2. Street appeal

There’s always a certain x-factor about homes located in quiet, residential and tree-lined streets. If the property has easy access to public transport, shops, cafes and schools, you’ll be onto a winner. Lifestyle locations will generally be more sought after compared to busier, inner CBD suburbs.  This is an important factor to think about when buying your next investment.

To maximise your earning potential, avoid properties located on busy main roads and homes that are too close to unattractive amenities such as factories and train lines.

3. Added features/amenities

Does your property tick all boxes when it comes to practicality, visual appeal and lifestyle requirements? If not, then it may fall short when it comes time to sell later down the track.

Picking a home with attractive amenities is the best way to help increase the value of your property.  The main features to look out for include:

• A central bathroom with a bathtub which is popular with females and young children.
• A home with private laundry facilities as opposed to a shared/communal area.
• A practical floorplan that complements easier living. For example, having a separate entrance hallway rather than walking straight into a living area and avoiding homes that have bedrooms coming off the living area.
• The flexibility to knock down walls and create open plan living areas.  For example, developing extra space such as a study nook area or an extra bedroom if necessary.
• Additional built in features such as heating and cooling systems, dishwashers, gas cooking and gas hot water systems.

4. Potential to add value

The aesthetic appearance of your property will often determine if you get top dollar for your property or something far less than you expected.

The ability to add true worth and value is one of the up-sides of owning a property, because you can never lose. In some cases, small improvements can pay huge dividends in years to come.

To stay one step ahead of the rest, when selecting the right investment, it’s important to buy one that has a certain “WOW” factor about it.  Look for unique features that will set it apart from the thousands of properties out there. Think maybe older style apartments with a fireplace, ornate interiors and period style homes.

Cosmetic renovations such as rendering, painting, new fencing, landscaping and adding security systems can make a huge difference in a short period of time. It’s an easy (but often an overlooked way) to add instant value to your property.

Not only will you increase equity this way but you can also expect better future rental returns and cash flow.

5. Focus on land value but not just any piece of land

Many investors make the mistake of buying larger properties on big pieces of land (usually on the outskirts of town) because of the incorrect belief that land appreciates and buildings depreciate.  To some degree this is true, however, it doesn’t apply to all properties.

It’s not the land that’s important but more the “land value.”  There’s no point buying a property in the country where buyer demand is low and scarcity isn’t an issue.

A smarter option would be to purchase something like an inner city apartment, located in a small boutique block of ten.  The land value with this type of investment is greater due to higher land scarcity and strong buyer demand.

Caution: Avoid high-rise apartments that have minimal land value component and are usually over saturated with other apartments. This tends to reduce land value significantly.

6. Buy wholesale not retail

It’s not hard to figure out that good real estate will always make you money. Because good quality properties are hard to come by, you should always try and hold on to them for as long as you can.

Incorporating property as part of your long-term wealth strategy is a very clever way to boost your income earnings.

To create instant equity, consider buying wholesale rather than retail.  An example of this is buying a property under $500,000 where 80% of people can afford versus buying a property over the 1 million dollar mark, where only 5% of people can afford to buy.

Advantage Property Consulting has purchased more than 75 blocks of apartments on behalf of syndicates and investors.  In this niche area of the market, we are competing with fewer buyers (usually in the multi-million dollar range) resulting in better buying power for our committed investors.

In summary, buying the right ‘investment grade’ quality property is all about following a blueprint that all successful investors follow.

Put simply, some properties generate better financial returns than others.  To reduce your chances of buying a mediocre investment that might be problematic for you later down the track, it pays to be educated about the potential risks/disadvantages involved.

If you follow our proven ‘success strategies’, you can rest assured that you’ll be one step closer to achieving your wealth creation goals.

Frank Valentic is managing director of award-winning buyers' agency Advantage Property Consulting.