The once-in-a-generation property boom we experienced during
the Covid pandemic and which was fuelled by historically low-interest rates at
a time of strong pent-up demand, was a time that encouraged many investors to
consider buying their first or their next property.
But the market is different today; you can't just run out and
buy any property.
Because not all properties make good investments!
In fact, less than 4% of the properties on the
market currently are "investment grade”.
You see...currently there are fewer properties on the market
than there have been for a long time, and while there are still many properties
on offer, there is now a real shortage of quality "investment grade"
properties.
Of course, any property can become an investment property.
Just move the owner out, put in a tenant, and it’s an
investment, but that doesn't make it "investment grade”.
An investment-grade property offers
strong and stable rates of capital appreciation, a steady cash flow, liquidity,
easy management, a hedge against inflation, and good tax benefits.
Having said that, I believe investors should invest in
capital growth first.
It's easier to build a substantial asset base that way, and
then you can eventually buy your cash flow down the road.
Think about the location
So, before buying your next investment property, you need to
ask yourself, would this property be considered investment grade?
For example, will the location outperform in the long term
because of its demographics?
When considering the demographics of a location, it’s not
just about owner-occupiers but also the demographic of the tenants who are
likely to rent your property.
You don't really want a tenant who's only a week or two away
from broke, do you?
I look at locations where the tenants that are aspirational,
have good income, and are likely to have increasing income over time so they can
pay more rent in the long term.
Think about the neighbourhood
Is the property located in a 20-minute neighbourhood-
in close proximity to shopping, amenities, and work?
Generally, a good neighbourhood is determined by the
physical location, suburb character, and its close proximity to amenities such
as a shopping strip, park, coffee shops, education, and even some jobs.
It’s obvious then that in the post ‘Covid’ world, people
will want to be in a location where everything they need is in short 20-minute
proximity - whether that is on public transport, a bike ride, or walks - to their
home.
Think about the property
Once you’ve done the above, the next step is to think about
the property itself.
Will this particular property outperform the averages in the
long term?
Will it appeal to a wide range of owner-occupiers and
tenants?
Because remember, you’re not looking for short-term profits,
you want to outperform the long-term averages.
You need to work out the land-to-asset ratio (the higher the
better) and decide whether there is something special or unique about this
property.
Is there potential to add value to this property -
manufacturing capital growth through renovations or development rather than
just waiting for the market to do the heavy lifting?
Finally, in order to determine whether the property is
investment grade, you need to be confident you’ve done all your due diligence on
the location and the property.
Are there any risks?
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Jason Gwerder
Saturday, 18 October 2025
