How to select a prime location for your property investment
Category News
The first and most crucial rule any investor needs to understand about real estate is location, location, location. It is a critical deciding factor and ranks before affordability, availability and demand. The more desirable a location is, the more likely it will increase in selling price.
However, just because a property is within a desirable location, it does not necessarily mean it will be a good investment. There are multiple factors that property investors need to take into account before deciding the level of investment they wish to consider. Picking the right location is only the first step; as such, we take a closer look at initial factors that will assist in determining whether or not your dream home is worth the investment.
Market growth
Understanding an educated prediction of future market growth is essential to any investment. One such signifier for growth is a prediction based on an increase or decrease in the area population. The more attractive an area or suburb remains, the more likely an increase in continued demand will be apparent.
As an investment property, the larger your crop of potential tenants, the more wiggle room you'll have with upping rental pricing. Investment in the area will likely increase as the property's value appreciates. More sophisticated infrastructure, better access to amenities, and higher-level job postings provide a reasonable benchmark.
The job market
Traditionally, people moved to areas because of job and career opportunities. However, the recent global pandemic has shifted our perception of property needs as more and more homeowners see the value of working from home.
However, a cursory glance at the types of careers and work opportunities in your area is still a vital deciding factor. Regardless of scale, diversity of opportunities is still your best bet. Consider the census data for the area, what percentage of the population is unemployed, and how stable that margin remains.
Home Value
What are your reasons for purchasing investment property? Is it to let, renovate and flip, or to acquire as an asset? Each factor bears hidden costs and may take form in various situations. One must consider renovation, maintenance, insurance, and property tax costs.
Your last preliminary check involves an assessment of an area's rental rates and whether or not that will factor into a return on investment with positive cash flow. Strong property markets have been known to collapse due to inconsistent rental rates. A five-year analysis of the history of any area and whether or not rental yields are positive or negative is a crucial step to undertake.
Income levels
After a brief market analysis, narrow your search down to neighbourhoods.
First and foremost are income levels, but not quite in the way you would expect. The higher the mean income of any neighbourhood, one usually expects the property value to match. To calculate the value of your return, the 1 percent rule is always a good starting point. In essence, a good investment return is a property that yields rent at 1 per cent of its value.
Low-income areas might initially seem like a reasonable investment. Still, one must consider that the lower the price bracket, the more likely one finds higher maintenance costs and tenant turnover.
Amenities
Beyond the locale, how developed is the suburb or neighbourhood? Is the schooling standard high, and are decent shopping facilities providing access to more high-end brands and convenience stores?
What about restaurants, parks, and medical facilities? External influences like these play a large role in determining value. Any neighbourhood with desirable amenities ranks high and is constantly more valuable than outlying areas.
Our next series will cover the final step in choosing an investment property in greater detail. Stay tuned for the latest property updates. Take a look at our latest listings [here]
Read our previous article here
Contact Hamilton's Property Portfolio if you want to buy or sell property near you.
Gauteng: 011 463 0155
Cape Town: 021 418 0328
Garden Route: 044 050 3295
Eastern Cape: 076 927 7787
Winelands: 021 863 0551
Mauritius: +230 5723 0369
Email: reception@hamiltons.co.za
Hamilton's Property Portfolio holds a Fidelity Fund Certificate issued by the Property Practitioners Regulatory Authority.
Author: Bryce Anderson