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Filtering investment properties the Wakelin way

November 28, 2016

With many weekends hosting over a thousand auctions in Melbourne, it would seem that securing a quality investment grade property would be an easy task. However, a closer inspection shows that this isn’t the case. At Wakelin Property Advisory, we estimate that less than 5 percent of properties make the grade from an investment perspective. A filter is required to isolate the target assets. Indeed, at Wakelin Property Advisory we joke that we are the kidneys of the property world!

Underpinning our filtering process is the principle that picking the right property is all about supply and demand. The right property type is always in high demand but short supply. For this reason, always focus on properties that have scarcity value.

The first filter is location. There is (and always will be) high demand for suburbs that are 2 to 12km from our capital cities. But it is not just about picking the right suburb; you need to find the right street as well – a quiet residential one that is close to amenities and public transport. This set of filters exclude properties that are far out from the city, on main roads, other secondary locations or are poorly serviced by amenities.

Once you have found the right street, you have to choose the right style of house or block of apartments on the street. You will find a variety of houses and apartment types on the market, but it’s vital you choose the correct architectural style. Period homes and apartments are ideally suited for investment as they are no longer being built and exist in finite numbers. The more new developments are being built, the scarcer these assets become! New builds, such as modern apartment blocks, exist in ‘infinite’ supply with more being constructed each year. These buildings lack the demand to match supply levels and therefore do not consistently experience capital growth like period homes.

Once the outside has been considered, continue the filtering journey indoors. Look for properties with one to two bedrooms, a conventional floor plan, and good lighting. For apartments, check the communal areas for upkeep – this is a good way to see how effective the owners corporation is.

Finally, it is important to avoid those apartments that have expensive features that hike up maintenance costs. Look out for elevators, swimming pools, security systems, communal heating and gyms. All these features have a cost in terms of high owners corporation fees, which eats into investment returns.

Once filtered, that overwhelming list of properties is narrowed down significantly.  From this smaller list, a quality investment grade property should stand out.