Finding the diamond in the rough

Avoiding the crowds

Far from enjoying stability and certainty with the “safety in numbers†mantra, Ben Kingsley, chair of Property Investment Professionals of Australia (PIPA), suggests that investing in areas already swarming with investors can be a real no-no.

“It is definitely riskier to buy into a location where the majority of the buyers are investors,†he says. “The reason for this is that investors will sell en masse if the area and the property they own struggles to provide any returns, and even more so when values start to come off.

“We are seeing this in some mining centres in Queensland and Western Australia right now.â€

Seeking new opportunities

So if it is new opportunities you are looking to invest in, where exactly should you be looking?

“Look at where other people have made mistakes to determine where you should avoid,†explains Christopher Mourd, head of residential real estate at LJ Hooker.

“The greatest concern is buying from property spruikers who are not positioned anywhere near the properties they are selling and are focused solely on yields. These were particularly prevalent during the mining boom. [Instead] look at the changing face of Australia and the emerging industries for opportunities.

“Education is one – there is always demand from tenants in university towns. In recent years, the number of students coming into the country has grown rapidly,” Mourd says. According to the ABS, international students in 2011 made up a quarter of Melbourne CBD’s population and a third of Carlton’s population.

“I’ve seen people buying an old Victorian home and turning it into student accommodation. Some of these have five or six bedrooms – way over what the average family needs. It’s the polar opposite of what they were intended for, but it can be incredibly rewarding.

“Another big shift […] is people owning beachside property as a holiday home but renting it out when they are not using it. It’s actually viewed as an investment firstly but also an opportunity for the family to benefit from the investment.â€

Basic investment principles

Regardless of where you intend to invest and the type of property you buy, there are a few basic principles you should use to minimise the risk of your property investment.

“Every area has investors, with the vast majority being locals,†Mourd says. “Always keep in mind that if you’re buying as investment today, will it suit another investor down the track when you want to sell? And will it also suit an owner-occupier, to double your potential buyer pool?

“You generally shouldn’t look at short-term investment, as there is a narrower opportunity to sell. Also, don’t overstretch yourself financially, and make sure you do your homework, particularly if you are buying out of area.

“We love property in this country, but take a balanced view of your investments. It’s all about how the market is performing at the time you want to realise your investment capital. Look past the property itself and think about what will bring tenants into that area.â€

Kingsley agrees, noting that employment, income and limited supply all influence tenant demand for a particular area.

“I’d avoid buying into any market that doesn’t have good fundamentals such as good lifestyle elements and good economic prospects.â€

Always keep in mind that an investment will never perform if the fundamentals aren’t in place to support future demand. Take that philosophy with you and you should be able to find opportunities wherever you go.