Last Updated: 30th September, 2022

Buying an investment property is not an easy task.

And things get trickier when you have to choose a location.

Finding the right location for your property can be crucial to the success of your investment.

Why is location important for investment?

The location of your investment decision can determine the types of tenants you’ll get.

If you want an investment property that will gain high rental yields for the foreseeable future, then you’ll need to choose a location that is popular with tenants.

If you’re opting to buy vacant land, you’ll need to choose a location that will increase in value in the future as you won’t be earning any rental income from it for a while.

How To Choose A Location For An Investment Property

Here are some tips you can follow to get started on choosing where to buy your investment property:

  • Invest where you know: Consider buying in markets you’re familiar with first so you spend less time researching areas or suburbs you’re not familiar with. This also means you have an intimate know-how of the types of tenant residing in the area. If you’re considering buying interstate, we recommend hiring a buyers’ agent.
  • Get a team ready: Get in touch with a buyer’s agent of the area you’re looking to invest in. It’s beneficial to go with the local buyer agent as he/she would have intimate knowledge of the area. Talk to the real estate or buyer’s agent to find out what people liked or disliked about the property or location. You should even have an accountant on your team to give tax advice.
  • Empathise with your tenants: Go for locations that tenants favour, instead of just what looks good to you. If the goal of your investment property is to earn a strong rental income and minimising vacancy, then opting to choose locations that tenants prefer is a must.
  • Stay updated about development changes: Find out if any infrastructure improvements might happen in the area. This might determine the type of tenants and the value of the location in the future. Get in touch with the local council to check if there are any planned developmental projects. Talk to the locals to get their feedback on how they feel about those projects.
  • Desirable features for tenants: Look into the features that are desirable to tenants like a garage, swimming pool, etc. While renters in Melbourne need transportation facilities, the same principle does not apply to renters in Perth or Adelaide who prefer to drive. For them, a garage is more important than having good public transport.
  • Costs involved: Take into consideration the maintenance costs of the property. If you’re buying an older property, then you might need to set aside some funds for renovations or repairs.
  • Vacancy rates: Review the latest vacancy rates of the location you’ve chosen. It’s good to invest in areas where vacancy rates are low as it means that your property will not be empty for long between tenants. A location with high vacancy rates makes it harder to sell it in the future. Information on vacancy rates can be found online on Corelogic and other websites.
  • Compare sales information: Check the recent sales figures for the locations you’re buying in. You can get sales data on how the property is performing online, or by talking to real estate agents and buyer agents. Look into the average prices of the surrounding areas. If there are huge margins of differences within the area, think twice before investing. If the prices are comparable, then it’s a safer bet.
  • Access to amenities: The proximity to amenities like shopping centres, schools, gyms, etc. determines how much demand there is for rental properties.
  • A building inspection is a must: Always do an independent pest and building inspection. An independent inspector will provide a detailed report about your property.
  • Take note of scarcity, demand and supply: The availability of rentals around the area determines the demand and supply. If your potential location is rife with rental properties, the oversupply might lower your rental yield. If it’s too scarce, then the rent might be high, but the tenant pool is limited. You have to choose a location that strikes the perfect balance between the demand and supply of rentals.
  • Decide on your investment strategy: Are you looking for capital growth potential or choosing a property to get the benefits of rental yields? If you’re looking to earn from rental yields, then the location of your investment property should be one favoured by renters.

Take A Look At The Broader Picture

Macro- and microeconomic factors also have an impact on where you want to invest in property. Look at the information related to the state and then home in on the suburb, neighbourhood and street. Macro factors include population growth, employment and infrastructure investment, while micro factors include amenities and transport. Let’s take Melbourne as an example. Melbourne experienced population growth of over 2% in 2018 with a demand of over 110,000 new jobs. There are plans afoot to build over 1.6 million dwellings by 2050 to accommodate the growing population and employment opportunities.

What To Avoid When Choosing Investment Property Locations

While there are a plethora of things you can do to ensure that you’ve invested in the right location, here are some things you should keep in mind.

  • Don’t get your emotions involved: Getting emotionally attached to the property will cloud your decision. Use analytical data and the knowledge of experts and local people instead of going with your heart. Going to look for a property when you’re in a bad mood is a disaster too.
  • Don’t buy a property with cheap strata levies: This is an indication that the building might not offer facilities that tenants want.
  • Don’t go property hunting or to open houses alone: Get a team of experts to go with you. These experts don’t always have to be a real estate agent or buyer’s agent. It can be your family or friends who will point out things that you were not aware of.
  • Don’t lowball the figure: If the investment property is really favourable to you, don’t offer a low figure, as someone else will buy the property before you.
  • Try to avoid buying off-the-plan units: While these units might be cheaper to invest in, you’ll have to consider that these properties are usually clustered together and built by the same developer. There’s just too much competition to get the right tenant into the property.
  • Buy in the location that suits the tenants, not you: You have to take the requirements of the tenant when you’re choosing a location. Do not make a decision to buy just because you love the location. Your investment property must be one in which you want your ideal tenant to reside in.

New Unit Or Established Property?

While investing in either a new unit or buying an established property have their benefits, investors are known to prefer established properties to new ones.

By buying an established property, investors benefit from:

  • Insights and data like comparable sales figures, vacancy rates, demographic profiles, types of tenants, etc.
  • Adding value to the property by renovating and refurbishing and making it more appealing to tenants.
  • Having a property close to a CBD as newer properties are situated on the outer suburbs due to unavailability of land. However, in some cases, new apartments can also be located close to a CBD.

However, investing in a new property is not without its benefits: