Why you shouldn’t ask “What is the best property to buy?”

As a Qualified Property Investment Advisor (QPIA), I’m often asked, what is the best property to buy for investing? Well, that’s not necessarily the best question to ask. The first question that we should be talking about is the Best Location? Its the location that deliver us the majority of our returns so we we are talking about up to 80% of the return is actually coming from the area you buy and only 20% from the property. The reason for that is things like income, its about amenity and all the lifestyle drivers that the area is delivering me and I’m going to pay a premium to get into the area, as opposed to the property.
In some cases, people might pay a premium for the property they are buying even if its an inferior property because that’s going to get you into the right area. So its really important to understand the area that we are selecting is going to give us the majority of our returns. If you are looking at your own backyard or your own city, that might be the wrong thing to do. In fact, you might get a better return by looking at another city where that pent up demand is going to give you an overall better return on investment.

Now, when we are actually talking about this 80/20 principle, 80% of returns coming from the area and 20% from the property, what we want to look at with the asset is sometimes, the asset can have intrinsic value and character. It can also have street appeal and all of those things that might make the asset highly appealing to an owner occupier and an emotional buyer. So sometimes, we can see that asset’s performance lifting higher and giving a more superior outcome in terms of the overall returns we get. But just remember, the modelling of this question is around area over property as oppose to houses over units.You’ll always get a better return when you pick the right location.

About the Author: Ben Kingsley is the founder & CEO of Empower Wealth – a specialist property investment advisory firm in Melbourne. He is a Qualified Property Investment Adviser QPIA, Licensed Real Estate Agent (Buyers Agent) in VIC, NSW and QLD and licensed Finance Broker. He is also the Chair of the Property Investment Professionals of Australia – the peak industry association for property investment specialists.