What makes an investment-grade location? With Brett Warren | Summer Series

Location, Location, Location!

In today’s podcast, we’re going to dive deep into the world of property investment and explore the importance of location in achieving long-term success. And more importantly, what makes an investment-grade location.

Joining me today is Brett Warren, National Director of Metropole Property Strategists, to share his expertise and insights into what makes a great location for investment.

Whether you're a seasoned property investor or just starting out, today’s podcast will provide you with valuable insights and practical tips to help you make informed decisions and achieve your investment goals in our changing property markets which are very fragmented.

What to look for in an investment-grade location

Location, location, location!

I’m sure you’ve heard about the importance of location.

In fact, you've probably heard me say that the location of your property will do around 80% of the heavy lifting of its capital growth.

But what makes a great location for investment? That’s the topic I’d like to discuss today with Brett Warren National Director of Metropole Property Strategists.

Factors that make an investment-grade location

There are many factors to take into account when looking for your next investment property, but if you do your research to find an investment-grade location, you’ll be well on the way to making a good investment decision.

1. Demographics

The first factor to consider when choosing an investment-grade location is the demographics. At Metropole, we look for areas where resident incomes are growing faster than the state average.

2. Supply and demand

While a lot of people suggest population growth is a key driver of demand for property, it is important to look at the supply side of the equation. We like to invest in areas with a limited new supply of land or dwellings. That’s why we like to invest in the inner and middle-ring suburbs of capital cities. 

3. Employment opportunities

Employment opportunities are also a significant representative of a suburb’s investment value. If an area has a diverse range of employment opportunities nearby, it is more likely to attract and retain a population of working professionals and families, and this will maintain property values.

4. Infrastructure and amenities

The availability of infrastructure and amenities is another important factor contributing to what makes a location “investment-grade.” 

Infrastructure refers to the basic services and facilities that support the local community, such as roads, public transport, and hospitals. Amenities, on the other hand, refer to the recreational and cultural facilities that enhance the quality of life in the area, such as parks, restaurants, and entertainment venues. 

5. Walkability

Investment-grade locations with easy access to shops and lifestyle precincts with high walkability will remain in high demand moving forward and have already seen more than 36% growth over the past 5 years.

 

Beauty, amenities, services, and walkability are all key factors that help set a high-value investment-grade suburb apart from the rest.

6. Gentrification

Gentrification is a process where a neighbourhood or an area is improved and redeveloped, leading to an increase in property values and slow displacement of older long-term residents due to rising housing costs. This process often starts with the influx of middle or upper-class residents, new businesses, and amenities, which attract further investment and development. 

Gentrification is a positive factor for property investment because it brings economic benefits and improvements to an area which in turn creates more demand and therefore attracts higher prices for local properties.

7. Attractive neighbourhoods character

Another factor to consider for an investment-grade location is those neighbourhoods that have undergone gentrification and now have an attractive neighbourhoods character.

This adds value to the neighbourhood and results in higher local property values because people are willing to pay a premium to live in attractive areas.

8. Low crime rate

Areas with a low crime rate are far more desirable to live in than those with a higher crime rate - people are willing to pay more to live in a safe suburb where you can live without fear of crime on your doorstep and this higher demand helps to support property prices.

What are the different types of locations?

Not all real estate locations are equal and just like there are different precincts on the Monopoly board, there are basically 4 types of locations where you could buy properties in the real world, and some are much more worthwhile than others.

1. Discretionary locations

These are the most expensive locations in our capital cities – the “established money” locations where most of the residents have lived for a long time and where many residents have paid off their home loans years ago.

2. Aspirational locations

These are the upper-middle-class areas and gentrifying locations of our big cities which would also be considered A-grade suburbs.

3. Affordable locations

This is where most homeowners and many investors look because that’s where they can afford to buy. However, sometimes investors buy in these suburbs because they are “advised” to buy at the cheaper end of the market.

As an investor I would steer clear of these affordable locations – most of these will never gentrify in your lifetime and they will underperform with regard to rental growth and capital growth.

4. Last choice locations

In every city, there are suburbs where people live because they really have no choice. No one wakes up in the morning wanting to live in these suburbs, but social circumstances force them to.

Of course, investors should steer clear of these locations.

A final note…

Remember that the location isn’t the only thing to consider. Owning the right property in that location is just as important.

So be careful … don’t get stuck with an underperforming property in the wrong segment of the housing market, because if history repeats itself, and it most likely will, you could end up with a dud property that you will regret owning and have difficulty selling if you need to.

Links and Resources

Michael Yardney

Brett Warren – National Director Metropole Property Strategists

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Some of our favourite quotes from the show:

“Your future income’s going to be dependent on your tenant’s ability to pay rent, and higher rents over time.” Michael Yardney

“There are jobs and there are jobs. And again, it’s not a judge of people, but Australia is becoming a knowledge-based society. People in the higher skill levels get paid a lot more.” – Michael Yardney

“I’d rather own a family-friendly apartment, or a townhouse, in a good location than a house and land in a poorer location.”  – Michael Yardney

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