How to Find the Right Investment Property

Information verified correct on October 21st, 2016

Eyes trump internet

You’ve done your research online and you seem to have an idea how to make a wise decision when buying a property. But have you ticked all the right boxes? You have to get outside to find the right property for you.

Marcela Garza-Barba gets into the details on finding the right property as she talks to Rich Harvey, Buyers Agent, CEO and Founder of PropertyBuyer.

Buyers Agent

Rich Harvey

  • Managing Director of PropertyBuyer, a company which provides award-winning buyers advocate services.
  • Specialises in property research, investment analysis and negotiation techniques.
  • Licensed real estate buyers agent, experienced property investor and qualified economist.

How can you detect a positive cash flow suburb?

Positive cashflow properties can be found in any suburb. It has been said that positive cashflow properties are more often created than bought off the shelf. It just requires some creativity to ‘manufacture’ the higher than average rental return so that the rent far exceeds the expenses and mortgage repayments. There are some suburbs where positive cash flow is more common. These are typically in regional areas or mining areas where there is a significant imbalance in demand for property relative to supply (eg: Port Headland, Karatha).

With some fixed interest rates now around 5 per cent it is possible to achieve positive cash flow in a wider range of suburbs now. The more deposit you put down, the greater the net cash flow you will receive from your investment property. Rising yields in a suburb can also be a precursor to capital growth. With a shortage of rental accommodation and rents on the increase, it may become more viable to purchase a property than to rent.

What’s one of the key strategies you can use to find a positive cash flow property?

One of the key strategies we are using to help our clients create and find positive cash flow properties is by adding a granny flat. We are focussing on areas around Western Sydney and the Hunter Valley, where there is a significant population base and high demand for affordable rental properties. By completing a small renovation on the existing house and adding a granny flat we are able to easily obtain a positive yield of around 9 per cent.

In terms of fundamental research, investors need to wear out some shoe leather and attend 50 to 100 inspections and start talking with local agents.

How can you make your property research more proactive and therefore discover the best hot spots around?

There are two basic types of research: a) statistical and b) fundamental. And with 15,000 suburbs to choose from I start with the market statistics to shortlist potential suburbs. I'm looking for suburbs and areas where there are three basic things: a growing population, stable and rising employment and strong infrastructure growth. On top of that I want to select areas that are undergoing some type of structural change or gentrification.

Key signs of an emerging infrastructure for hot spots include new train lines, hospitals, universities, massive mining operations, LNG gas plants, new industries, airports or roadways. Investors need to look well beyond the median price changes to investigate if the suburb has increasing demand for specific types of properties and whether developers have moved into the area to satisfy that demand.

In terms of fundamental research, investors need to wear out some shoe leather and attend 50 to 100 inspections and start talking with local agents. There are lots of questions they need to ask agents to find out what makes the local area tick, who's moving in and who's moving out, how much rent they pay, what features renters want and how long it takes to sell a property (days on market). Don't just read magazine and newspaper articles, get out there and talk to the locals to verify information. Ask the local council what is on the drawing board and find out if any new employers are coming into the area.

Nowadays there's an overflow of information regarding property investment, how can I understand the trends in the property market?

Reading extensively and regularly is one way to keep track of trends. I read a wide range of property reports, articles and journals for at least 1 hour per day. I need to stay updated over a wide range of areas and topics.

Subscribing to regular newsletters is good and attending seminars can help. But sticking to the basics on property investment is critical. Property investment is a longer term strategy. Sure there are methods to make some quicker profits, but for most investors we are talking about at least a 7 to 10 year time frame. Investors need to be aware that property moves in cycles. There will be ups and downs along the way.

Don't get swayed by glossy brochures with lifestyle pictures showing happy families by the pond or the beach – look at the key numbers. How to close to median price is the property I am looking at? What is the rent? Will rents fluctuate much in the area?

On what do I need to focus to make the right decisions?

In a word it comes down to research. The quality of your research will determine your success as an investor. Don't just inspect three properties and choose the best one.

Step back and follow the same 7 steps we undertake for our clients:

  1. Create a strategy – select your criteria (capital growth or positive cash flow bias). No right or wrong here; it depends on your individual financial position.
  2. Choose the areas/ suburbs that best deliver the chosen goal.
  3. Shortlist suitable properties.
  4. Appraise their value.
  5. Negotiate the best price and terms.
  6. Due diligence (pest and build and legal review prior to exchanging contracts).
  7. Select a competent property manager.

Following a process using checklists means you have much better chance of success, than randomly searching on the internet for an elusive bargain.

As one of the leading experts in your field, how can someone find the "right property at the right price every time"?

Focus on three main things:

  1. Long term capital growth potential
  2. Sustainable rental returns
  3. A clear exit strategy (being able to sell the property to another investor or homebuyer — don't buy something that someone else won't want to buy. Avoid really ‘out-there’ deals)

Finding the right property for you could mean looking at hundreds of houses over several months. If you do your due diligence and compare the right loans for your situation, you should be able to find a solution that works for you.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at Talk to him to find out more about home loans.

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