What makes an investment property a great one?

Last Saturday a delighful new investor client followed her itinerary through her first weekend of inspections and later that afternoon we received her diligent feedback.

One property was a strong ‘green light’ and clearly stood out from the rest.

Situations like this can prove to be a real challenge. Quite often we’ll identify a winning property in the first few days (or we will be aware of one which is suitable to a new client’s brief. It’s a catch-22 when we know it’s a great property, but the client isn’t quite ready to make a purchase decision on the basis of having limited properties to contrast it with.

In times like this, we explain to our clients that it does tick the “must-have” criteria boxes, but the choice is completely theirs.    

While our client was open-minded and focused on selecting a great asset, we decided to keep the momentum going and to engage in the due diligence phase.

We immediately got in touch with the agent to book an inspection and were informed that another buyer had already submitted an acceptable offer, so we had to move fast. We arranged to inspect in person on the following Monday morning and could easily see why our client was excited – the property was huge and had an incredibly generous floorplan.

The developer could have built a three bedroom, pokey townhouse but instead had elected for a two bedroom design featuring a double garage, study, massive living/dining space and a generous master bedroom with walk in robe. What we would technically classify as a townhouse felt more like a house.

To strengthen the decision, this property had no requirement for an Owner’s Corporation as it had no shared driveway and no shared land. Set privately behind at the rear of the street-frontage property meant that the yard and living spaces both took full advantage of the north facing aspect.

Excitedly reporting back our encouragement to our client was met with fresh enthusiasm; “The property felt good right from the start.  I am the type of person who can easily get caught up in things and so I tried to keep a level head and remained detached. So I’d almost talked myself out of it on Sunday and thought that I should keep looking rather than just buy something from the first week.”

She had felt the brunt of the Catch-22 decision and decided to proceed with the property.

Our decision to encourage her was easy; this property had “owner-occupier appeal”… something which can often be lost along the way when developers pitch a product for a quick and lucrative sale. 

If an agent ever calls us to say they have a “great investment property” we have to question what makes it good for an investor yet not a home buyer? Not only do we need to target properties which will hold strong resale potential and grow readily in value, but for the “buy and hold” investment model we need to remain focused on target tenant appeal.

A property could have a great yield or strong tenant-demand, but this won’t always make it a good investment. If a property doesn’t appeal to a home-buyer the resultant capital growth prospects will be significantly compromised, and we’ve seen this tangible effect in the market since APRA enforced stringent changes to investment lending and investor numbers have declined. Properties which are compromised (ie. in terms of location, awkward floorplan, nowhere near public transport, on main roads/train lines or in high density developments) were once bolstered by the strong investor market but are now becoming increasingly challenging to sell. Comparable properties with owner occupier-appeal will also be those which generate emotional bidding at auction, hence those more likely to result in a strong sale price. In turn, attractive valuations will be supported by comparable sales of such properties. 

We were thrilled for our lovely investor client; our rapid due diligence paid off. We managed to secure the property for the same price as the other offer and our advantage was her ability to offer stronger terms.

The lapsed time from the first itinerary to unconditional purchase was only 5 days. The clients only regret was that our journey together was so short. We felt a bit the same…. she was a delight, and we look forward to embarking on the next phase; helping identify a great property manager and arranging access prior to settlement to locate a lucky tenant.

“I am disappointed that our engagement was so short, you are a wonderful team to work with and I did really enjoy that first week of inspections. As you could probably tell from my detailed report!”