Filtering out the right investment

You can’t work for an extended period in my industry without being struck by the broad range of approaches to property investment.

And because it’s an unregulated space, it carries some dangers for the consumer. While I personally know of many highly intelligent, entirely scrupulous advisors, there’s no doubt there are some operators out there with limited experience and little knowledge.

I believe one area where it’s easy to identify a sub-par advisor is in how they select property investments for their clients. In particular, the level of detail they apply in sourcing the right type of assets.

So, how do we find our pool of investment property options from which we can draw possible opportunities?

Again, like all things here, we tackle the process methodically – and it’s proved to be a rock-solid approach for finding the best options.

Research, research, research

Smart property investment involves identifying assets that marry the two components of excellent value growth potential and sustainable levels of rental return. This is the foundation for long term wealth building.

In order to do this, we consider a wide range of development projects and builds, and apply big-picture analysis as part of the early selection process.

Vendor due diligence

It may surprise many to learn our first port of call when evaluating investments isn’t necessarily about location.

Sometimes, investment quality has as much to do with who is developing an estate or building a project as it does with locational factors.

So, the start point is full due diligence on those who are supplying the real estate we will present to our client.

You must seek builders and developers with a track record of proven quality – both in terms of the end product, and the way in which they deal with their clients and contractors.

If we’re unfamiliar with a builder/developer, we’ll have questions that need answers. We want to see examples of how well established they are in their particular market. We are also constantly seeking endorsements from their past clients and contractors. An impeccable reputation is essential and any whiff of improper dealing is taken seriously.

We also prefer to draw on our established and extensive networks of great professionals and seek advice about a builder/developer from others we already know and trust.

That matter of consistency and track record also extends to the actual product they produce. Regardless of location, we’re wanting to engage with those who adopt best practice when bringing in a quality product within a set budget.

Region

When it comes time to start studying locations, the best approach is to go from macro to micro.

Defining your preferred locations first by region helps you comprehend those big economic drivers which compel markets and ultimately impact the properties you purchase.

We take a look at what’s driving a regional economy – is it multi-faceted or single industry? Are we considering a municipality that’s over-reliant on seasonal industries like tourism? These sorts of metrics help define demand.

Of course – the flip side of this is supply. We need to determine if, on a regional basis, the potential investment product we’re considering is in a sector susceptible to oversupply. We’re also looking specifically at future supply too. Given many developments need to time to come to fruition, you don’t want a client to be taking possession of their new asset right at the moment a heap of competing stock is hitting the region’s market.

Next – we’re interested in the regional property price cycle. While long-term investing will smooth out short-term value shifts, buying at the bottom of a cycle let’s clients gain equity fast. We study price movements across the area and determine if we feel the property is off its peak and potentially undervalued.

Finally – the regional sentiment is key. Overall confidence among residents and potential purchasers on the resilience of property values and tenant demand is key.

Area

This is the stage where we hone in on the particular suburb to check it’s ticking the boxes for great property value fundamentals.

Demographic studies of the area’s residents help paint a picture. We’re interested in household income, dominant workforce levels and household composition. Is it full of middle-to-high income, aspirational residents? Is there a good stream of stable, well-employed tenants seeking quality accommodation?

In addition, the owner-occupier/tenant ratios are one of our primary metrics. Despite the purchase being an investment property, at some future date that asset may well be sold. A high relative number of owner-occupiers in an area helps keep prices resilient.

Suburb-level metrics must be studied too. Elements such as median prices and how they’re moving – broken down into property types – are an excellent marker of suburban performance, but there are other measures too. Vacancy rates must be tight, and the supply of rental listings should also be closely monitored.

We’re also looking at lifestyle factors in these addresses. A location needs to have ready access to employment hubs, and the residents must be able to find necessary services, facilities and infrastructure for both convenience and relaxation.

Finally – while the regional supply pipeline of available properties was key, we are also interested in studying this at a suburb level too. Choosing assets in an area which will see several major developments of similar housing stock – particularly in terms of design and appeal to certain renter demographics – can be problematic.

Project

This is where we go even more granular, by seeking metrics that surround a particular development project with potential.

We are looking carefully at the property type to ensure it fits our model as an excellent investment option. If it’s a townhouse development, for example, will the quality of the build and layout of the structure make for a good long-term investment?

We are also assessing the property offers in terms of how well it will fit our client’s investment criteria. Does the project itself meet the standard in terms of being diverse and having appeal to owner-occupiers as well as tenants?

Fundamentals around the project’s access to local services and amenities are important. Is it easy to reach public transport options, for example? Is the project in a quiet location away from major roadways? Are the common area facilities of good utility, and not a huge impost in body corporate charges?

The standard of property management on offer is important too. We want to ensure the onsite manager’s service is of an acceptably high level, and that they’re capable of attending issues quickly and efficiently.

Selecting potential investment assets isn’t simply a matter of looking at the online listing portals, ticking the criteria and calling an agent. If you want the best chance of maximising your outcome, it’s essential you use a professional who can conduct a comprehensive study of the real estate options. Any professional offering you advice needs to be qualified (QPIA), licensed agent, hold professional Indemnity insurance and most importantly not have an undisclosed conflict of interest and an accredited ASPIRE Property Advisor Network Advisor – 1300 710 933.

https://www.linkedin.com/pulse/filtering-out-right-investment-richard-crabb/

 

Richard Crabb | MD ASPIRE Network | PIPA Board Member
Author: Richard Crabb | MD ASPIRE Network | PIPA Board Member

QPIA® - Qualified Property Investment Advisor | Licensed Real Estate Agent - VIC: 082760L - SA: RLA 292544 - QLD: 3579879 |Diploma of Financial Planning |Active Property Investor | Board member of PIPA - Property Investment Professionals of Australia. Richard is the Founder and Managing Director of the ASPIRE Advisor Network. After an extensive career in corporate finance and through his personal investing experience, Richard identified the need to create a system and framework that supports ethical, independent property investment advisors who operate in the new property market. The ASPIRE Advisor Network now supports independent property advisors across Australia by providing their business engine and acquisition process, designed around concepts of future compliance in the brand new property sector. Richard together with the ASPIRE team has also developed a complete end to end software platform, which is leading the way to deliver property investment advice in the new property space. Our goal is to work with investors to implement their goals and objectives buying investment properties across Australia, utilising a structure and information-rich end to end experience.

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