What Sort Of Indicators Should I Look At In A New Home Location?
Buying a home to live in yourself and buying an investment property are two completely different things. What is attractive and desirable to you may not be remotely appealing to the majority of tenants.
For example, if you work from home, enjoy the quiet life and don’t have school-aged children, then you aren’t going to mind being in an outer-lying area with few transport links and no nearby schools or playgrounds.
Buying a property in a rural area is often a cheaper option, and if it ticks your boxes to live somewhere remote, then the lower price tag is an added bonus.
However, when you are looking at buying an investment property, your thinking needs to change. You need to focus on what is going to be most attractive to the widest number of people possible. In this instance, an out of the way location is not necessarily going to be the best idea, even if it comes at a lower price.
If there are few transportation links and no local conveniences such as shops, services and schools, then tenants are unlikely to be attracted to the area. This is automatically a big problem because, if you don’t have tenants, then you won't get the passive income you need to cover the mortgage on the property.
In the end, it comes down to the distinction between buying on emotion and buying on evidence. We had clients who made this mistake, and they literally paid the price for it.
Case Study – Mr. and Mrs. Hinde-Syte
Mr. and Mrs. Hinde-Syte lived in a busy capital city. They had both built successful careers as freelance professionals.
As they approached their forties, they talked about the future, and came to the conclusion that they had two ambitions in life. The first was to escape the rat race for a couple of years. The second was to have a secure and comfortable retirement.
They decided to combine these two ambitions. They would sell their place in the city and buy a property in a rural setting where they could enjoy some peace and quiet. They would buy somewhere cheap that needed fixing up, spend a couple of years carrying out the renovations, and then move back to the city.
They did their sums and were confident that the value they would add to the house through renovating would give them enough equity to put a deposit on a place in the city. They would rent out the rural property, which would cover that mortgage, and their income would cover the mortgage on their townhouse. Once they reached retirement age, both mortgages would be paid off, and they could live comfortably on the income from the rental property.
It sounded like the perfect plan. They found a lovely house in a beautiful location, miles from anywhere. It was exactly what they were looking for. It needed fixing up, but once the work was done, it would be stunning.
After two years the house had been restored to its original condition. It was beautiful, and they thought that renting it out would be no trouble at all. However, because the property was large and the location was so out of the way, with no shops or amenities nearby, they really struggled to find tenants and had long periods where the house was sitting empty.
Not only this, but in the two years that they had been out of the city, the house prices had shot up, and so, although they had increased the value of their rural property by a significant amount through the renovation work, they only had enough to put a deposit on a tiny house in a less desirable suburb than where they had previously lived.
What had seemed like a good strategic move at the time quickly turned into a nightmare. They could have avoided all the headaches and heartache if they hadn’t made the mistake of buying on emotion rather than factual evidence.
Striking The Balance
When looking at indicators for a good location, there will always be a balance. You need to ensure you are buying in an up-and-coming area where the prices are still affordable. At the same time, you don’t want to find yourself buying in an area that probably isn't going to develop that quickly.
It can be very tricky to get the balance right. The first thing you need to do is to make sure you are thinking about what is going to work for prospective tenants. If you can’t get people to rent your property, then you won’t benefit from that passive income.
To your success,
Tony Myers
Australia’s Authority On Real Estate Investment For Busy Professionals