HOW do you choose the right location to invest in real estate?

Your choice of location for any residential property investment will generally hinge on personal finances and the level of risk you are willing to shoulder.

Here are some things to consider once you have worked out how much you can afford to spend.

Economic basics: Look for areas with good prospects. Promising signs include strong population growth, investment in local industry, job openings, new supermarkets and chain stores. Vacancy rates can be a guide to good areas.

Low vacancy often means there’s strong economic growth and development is not keeping pace. You can usually hedge against volatility in demand if you buy in a major population centre with many renters.

Renter convenience: Your future tenants will want good transportation links and access to schools, universities, shopping, dining, medical facilities and local amenities. Convenience for tenants will keep demand high.

Emotional baggage: Think like a tenant. Avoid making choices based on personal preference about where you would like to live or holiday. Consider the average income for the neighbourhood and rental affordability for those who live in the area.

Vision: What you see today might be a very different proposition tomorrow. Be wary of developments with similar offerings as they may be rental or sales competition. As Apple’s late Steve Jobs would say, think differently. A unique property can boost your marketability, yield and long-term gains.

Diversity: If you live in Newcastle and invested there your home and investment properties would be exposed to the same economic swings. Manage your risk by putting your eggs in separate baskets. Land taxes and stamp duty are another incentive to diversify. Most state and territory governments base land taxes on the cumulative value of unimproved land other than your principal place of residence. Land tax on investment properties can generally be minimised or eliminated by dividing your holdings between states and territories to stay below their given thresholds. Stamp duty varies significantly from state-to-state so it pays to sit down and do your math.

Property management: Buy where you know you can hire a great property manager if you can’t commit to doing it yourself. The best property in the best location can collapse under the weight of poor management and maintenance.

Tony Winterbottom is a general manager of Defence Housing Australia

Posted by Tony Winterbottom – News Limited Network on 8th February, 2013