The features to look out for in a good investment suburb

Property management

You want to purchase an investment property, but want to be sure you buy in an area that shows growth potential. You also want to feel confident about being able to rent the property. How do you find the best suburb for investment property?

Location, location: look for popular, convenient and gentrifying suburbs

Surprisingly, the rental yield in Sydney and Melbourne is not as high as it is in some outlying suburbs. Look beyond the city centres and find an area that is within easy commute and seems to be on the rise. Prices in these suburbs will be lower, but you should see signs of price rises that indicate the suburb is on the rise.

You may have to drive to these suburbs to get a feel for them. For example, the Mornington Peninsula was once a retirement community, but now that many young buyers and renters are priced out of the Melbourne market, they are looking towards the Mornington Peninsula for affordable properties.

“Property hotspots are suburbs that are showing signs of gentrification. Take a walk through the town and look for new restaurants, cafes and other indications that the town centre is being gentrified.”

The Mornington Peninsula is just one example. The Central Coast of NSW is another example. Some formerly overlooked suburbs on the Central Coast are being bought by first time buyers and apartments are being rented by commuters to Sydney. You can find other outlying suburbs, but what should you look for in a suburb?

What makes a good investment suburb?

You need to look at three key things:

  • The suburb should be becoming more popular. If you’re looking for an apartment or house to rent, an indication of this will be the rental return. A high rental return means a suburb is becoming popular and you can expect the suburb growth rates to rise.
  • The suburb should be conveniently located. It should have good transport links, have a shopping centre and have schools and hospitals nearby.
  • Property hotspots are suburbs that are showing signs of gentrification. Take a walk through the town and look for new restaurants, cafes and other indications that the town centre is being gentrified. Also look for homes that are being renovated in the area.

In some cases, you may find a suburb that has already been gentrified and prices are high. What can you do when you find such a suburb?

Look for the ‘ripple effect’

If you’ve found an already gentrified suburb where prices are high, have a look at surrounding suburbs. The ripple effect usually applies to nearby suburbs when buyers and renters get priced out of one area. An example on the Central Coast is Bensville. It is only a 10 minute drive from Avoca Beach, but prices are much lower than Avoca Beach, which has already been gentrified. Bensville has experienced real estate price rises and rental returns are good.

Look for price variations between an already gentrified area and a nearby suburb. You can usually find a suburb profile online or look at real estate prices in the area. A price difference of over 5 percent is usually a good indication you are looking at high growth suburbs with the potential to grow in value.

Also look at quarterly growth rates. Any good investment suburb should be growing and even if growth is slow at the moment, there is potential for faster growth as the ripple effect kicks in and the suburb growth rates will probably improve.

Look for suburbs with high rental yields

High rental yields are important, but they may not be in the places you expect them to be. Some smaller suburbs have higher rental yields than larger suburbs where more houses and apartments are available for rent.

Find rental yields online for any suburb and compare them with nearby suburbs in the area. The results may be surprising. In some areas, house and apartment prices are low, but rental yields can be 2 percent higher than in another area. If you see an area with high rental yields, it might be the perfect place to buy, but you need to look more closely at the area.

Look for good schools and access to amenities

Any suburb should have good schools nearby. There should be a nearby primary school and an easily accessed high school. Many renters have children and schools are the first thing they are looking for.

A suburb should have some amenities in the area and others within easy driving distance. Even a nearby corner store and a cafe can indicate an area is growing and as it grows, expect more businesses to appear.

Also look for a suburb that is well-connected with public transport. Many people who rent only have one car and someone will need to take a bus to the shopping centre or to a nearby train station. The bus service should run all day and take passengers to shopping centres, trains stations and other amenities.

Look for suburbs with low crime rates

No one wants to live in a high crime area. You can easily find these high crime areas by looking online. Choose the broader area (such as the Mornington Peninsula or the Central Coast) and use a search engine to find high crime areas in the vicinity. Avoid buying in areas where crime rates are high, but don’t overlook other suburbs with low crime rates not mentioned in an article or state publication.

Invest in suburbs with a low unemployment rate

You want tenants to pay their rent on time and areas where unemployment rates are high may not be the best areas to invest in. However, a good property management service will look into any tenant’s past history and find tenants who have been working for the same employer for a long time and have always paid their rent on time.

If unemployment is high in a suburb, double check the crime rates. In many areas, crime is higher in areas where unemployment is high.

You may find you get the best rental return in an area where property is less expensive. There can be two reasons for this. These are areas where renters look for houses and apartments at lower rates and if you pay a high price for a home or an apartment, your rental yield is likely to be lower. The perfect investment suburb may be in an affordable area where homes and apartments cost far less than major city areas.

Do your homework first and find an area that meets all or most of the points listed above. You may be surprised by what suburbs offer the best capital growth and high rental returns. When you think you have found the right investment suburb, read Top 10 features your home must have for immediate tenant appeal.

The article will help you get your investment property ready to rent to good, long term tenants.

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