Author: Deciding on which location to buy in is arguably the most important factor to consider when investing.
This isn’t an easy decision and determining where to buy has vastly different criteria than purchasing a home to live in.
Understanding the value of location
If you’re looking to invest, the two most important ingredients for you to consider are high growth rates in property values and relatively high rental returns.
Many people naturally assume the best investment properties are located in areas where there are high growth rates in property values.
However this isn’t necessarily the case as it neglects to include the importance of rental returns.
Contrary to popular belief, most property investors are average income earners who own one or two properties and primarily invest in property to boost retirement savings.
They also generally need to borrow funds for their purchase, meaning there is a limit to how much they can afford to pay for their initial investment.
It also means that higher rental returns will significantly assist with loan repayments and take much of the financial burden of owning another property off of the investor.
What is a reasonable rental return?
In Perth, the gross rental return for new investors purchasing the median priced house or unit and receiving the median rent is now between four and five per cent.
In some parts of Perth this number can approach as high as 10 per cent!
In these situations the rental income is often sufficient to repay loan commitments. However the trade-off is usually less growth in property values.
Before jumping into purchasing an investment property, take the time to investigate all possible locations of interest.
Remember, what makes an attractive home doesn’t necessarily make an attractive investment property, so be clear to differentiate between the two sets of priorities before making your choice.