Investing where you live because you are comfortable with that location, you know the facilities and what is going on, sounds all fine but as Jane Slack-Smith from YourPropertySuccess.com.au will point out there are some shortcomings that may not be that evident.
Kevin: There’s always debate about how much knowledge you need to have about a property if it’s going to become a good investment and whether you really need to personally know the area intimately. I guess with the Internet nowadays, so many things can be done at arm’s length, but is that such a good idea if you’re a property investor?
I’m going to talk to Jane Slack-Smith now from YourPropertySuccess.com.au.
Jane: Hi, Kevin.
Kevin: Nice to be talking to you again. Jane, your view on this? Do you really have to know the area?
Jane: I think there are two sides to this story. I speak to people all the time who say they’re going to invest where they live because they know the area so well, and when I ask them a few quick questions about how well they know the area, like what’s the median price, what’s the percentage of renters and therefore, what is the vacancy rate, and just general conversational questions that I’d ask any investor, they can’t answer those questions.
If I flip that to your question, which is do you need to know an area well, I think you need to know it well but as you pointed out, you can get a lot of that information off the Internet.
Kevin: Yes, I think there are two things here. You need to know if you’re going to live there and live there with your family, but maybe you need to know it differently if you’re looking it as an investment. There are certain other things that you need to touch on if it’s an investment property.
Jane: Absolutely. As an investment, what you need to know about an area is completely different to if you’re a homeowner, as you pointed out. It’s not about lifestyle choices that you might make for yourself; it’s about is that property going to make you money as an investor? The key criteria changes.
We want to know who is the typical type of person for the area, which means we need to understand the demographics. We understand what’s the typical type of property so that we can actually find a property that suits the majority of people who want to rent in that area. As an investor, that’s what you’re after usually, the long-term investment.
However, I do think that you do have to visit the area before you purchase.
Kevin: Let’s talk about that. When you do visit the area, give us some tips on how you should be looking at it, because obviously, you’re going to visit it. You won’t be living there, so therefore how do we assess it’s suitability as an investment?
Jane: You can pick up 80% to 90% of an area’s information from the Internet. Things that I like to understand are is there a good area of town or a bad area of town? You can pick that up through real estate agents’ descriptions of “It’s in the golden triangle” or “It’s on the right side of Parramatta Road” for instance.
But when we’re talking about actually visiting feet on ground, it’s about walking around the area at different times of the night and day, calling into the local shops, having a chat to the pharmacist or the newsagent, and just getting a feel for what that area is like – looking at how well-kept the streets are, the type of cars that are in the garages, getting a feel for are kids running around happily in the park or is everything locked up at 6:00 and the locks are on the doors?
Kevin: That’s such good advice. I think, too, walking around the area, do it at different times of the day. Do it, not at sun-up, but certainly in the morning, do it at night, just to get a feel for what does happen in the area. What do people do in the area? How do they live there?
Jane: Absolutely. Even simple things – like I know real estate agents who know that there might be specific traffic noise associated with a nearby industrial site or even airport noise will coordinate the open for inspections at the time of days when that noise isn’t there. Then all of a sudden, someone is shocked by the fact that they bought behind a quarry, for instance. Walking around and getting a feel at different times of day I think is really important.
Kevin: Indeed. Any other tips you’d like to give us in terms of understanding the area? What are the key things that you look for when you’re assessing an area?
Jane: I’m a long-term buy-and-hold investor, so I’m looking for proof that the area has been popular in the past. I’m looking at past capital growth and the fact that there has been some interest in the area. But I’m also looking at anticipation of the growth in the future because I want my investment to grow in value.
I want an economy that is stimulated. I want a multi-economy, so I want to have different interest groups or industries in that area. I’m also looking at population growth and I’m looking at income growth. I want an area that’s moving ahead, which means that in the future, people can afford more for the property that I have.
Kevin: Jane Slack-Smith, always great talking to you. Jane, of course, from YourPropertySuccess.com.au.
Jane, all the best and thanks for your time.
Jane: Thanks, Kevin.