Just Four Elements...

Investors contact us for help. Sometimes they want help with their strategy, other times they are not Victorian-based and require someone on the ground to execute a sound purchase. One thing they almost always have in common is a misconception about what makes for a good investment. It's not only about capital growth.

Every investor wants to purchase a property which will grow in value. Preferably they'd like it to outperform the market. This is achievable, but there are arguably three other metrics which are just as important, if not moreso.

The first essential element is that a genuine growth driver needs to be present. Growth drivers must be sustained and ideally consistent; not short term, not sporadic and not based on an employer or project with a use-by date. Proximity to lifestyle centres (e.g. high streets with a ‘heartbeat’, rail station, cafes, shops, schools) are usually reliable hints. 

The second essential element is the tough one; rental income matches the investor’s rental yield requirement. In short, this means that when rental income is offset by the outgoings (made up of mortgage repayments, rates, insurances, maintenance and property manager expenses), the differential is easily covered by the investor’s budget. If the net outgoings exceed the investor’s surplus income, then trouble will spell. Reasons why investors sell their investments are often based on the ongoing affordability. 

The third element relates to vacancy rates. To pursue a specific asset type in a given area without understanding the corresponding vacancy rates is foolish. A five per cent or greater vacancy rate should sound warning bells for any investor, and ideally a three per cent or less set of rates should be the target vacancy rate. 

The final element is the quality of tenant. A great tenant is one who respects the property, pays on time, creates the least wear and tear on the property, asks for (only) fair items, and one who stays for their entire term (or longer). There are plenty of strong capital growth adventures I've heard of where the investor’s experience was fraught with stress, upset, damage, tribunal appearances, hearings, arrears, fights and frustration. A quality tenant can make the difference between an easy ride and a difficult one. 

When an investor can bank on solid, sustained capital growth, rental income which meets their needs, a constantly tenanted property and a happy, respectful tenant; their journey is as positive as it could be. 

Four out of four makes for a happy investment journey.

This month Cate and Amy enjoyed sharing one of their favourite growth areas with Domain. Our road trip and interviews in Sunshine were lots of fun.

Cate's subsequent interview and feature article with API compared some of the Western corridor suburbs and differentiated those she supports from those she doesn't yet see viable growth drivers in.

In this low interest rate environment, it's little wonder that a rate increase comes as a shock to investors. Cate shares with Real Estate Talk why the increased rates for investors are the least alarming finance issues for investors. Later Cate also touched on rent rises, and when they are NOT advisable.

Our recent article may have touched a nerve for some readers who found it difficult to stick to the numbers and remain pragmatic when investing. Cate opened up discussion on the common investor misconceptions in this article.

Amy kicked off a two-part series for investor clients looking to commence their investment portfolio adventure. Part One: Developing a Brief was tailored to her loyal first-time investor clients and she shared with SPI. Stay tuned next month for the second installment.

Securing a beautiful house for a lovely client in the face of tough (and questionable competitive tactics) prompted Cate to write this article about the Negotiation Tactics Which Can Ruin a Deal.

And finally, Cate was interviewed on Where She Lives by REBAA. Explaining how she negotiated her family move to Yarraville was amusing.

This month we share three of our favourite sub-$510,000 investment purchases. Enjoy!...