When it comes to property investment, you’ve likely heard the saying, “Location, location, location.” But what does it really mean, and why is it so crucial? As you embark on your property investment journey, understanding the importance of location will be one of the most valuable lessons you’ll learn. It’s not just a catchy phrase—it’s the cornerstone of successful property investment.

In fact, the location of your property does about 80% of the heavy lifting when it comes to capital growth. So, when you choose the right place, you’re setting yourself up for a much greater chance of success. But if you choose poorly, you could be setting yourself up for disappointment, or worse, financial loss.

In this blog, we’re going to dive deep into why location is so important for property investors like you. We’ll explore different types of locations, what factors make a location truly investment-worthy, and how to pick the right property in the right place. By the time you finish reading, you’ll have a much clearer understanding of what to look for and why it matters.

Understanding the Types of Locations

First things first, not all locations are created equal. Just as in the game of Monopoly, where certain properties are more valuable than others, the same applies in the real world of property investment. Let’s break down the four main types of locations: Discretionary, Aspirational, Affordable, and Last Choice. Each comes with its own set of characteristics, and understanding these will help you make better investment decisions.

1. Discretionary Locations

Discretionary locations are at the top of the property food chain. These are the most expensive, sought-after areas in our capital cities. Think of them as the “established money” locations. In these suburbs, you’ll find that many residents have lived there for a long time and have often paid off their home loans years ago.

These are the suburbs where people want to live because of the lifestyle, amenities, and prestige they offer. In general, these locations are the inner-ring suburbs of our major cities—places like Toorak in Melbourne, Double Bay in Sydney, Dalkeith in Perth, or Teneriffe in Brisbane.

However, while these areas are often considered A-grade locations, they can also be more volatile in terms of property cycles. Property values in these areas can fluctuate significantly, especially during economic downturns. But over the long term, these locations tend to deliver strong capital growth because they remain highly desirable places to live.

For you, as an investor, buying in a discretionary location can be a smart move if you’re prepared to weather the ups and downs. These areas often attract buyers and renters who are willing to pay a premium for the lifestyle and status that come with living in such a prestigious area.

2. Aspirational Locations

Next on the list are aspirational locations. These are the upper-middle-class areas of our big cities, and they’re often the suburbs undergoing gentrification. These areas are still relatively affordable compared to discretionary locations, but they’re on the rise.

Aspirational locations attract a wealthier demographic—often affluent millennials or young professionals—who aspire to live in these areas as they move into the family formation stage of their lives. When this demographic moves into a suburb, they bring with them higher disposable incomes, which tend to push up property values. This creates a ripple effect that not only increases property prices but also leads to economic, social, and cultural changes in the area.

For example, you might notice new cafes, boutiques, and restaurants popping up in these neighbourhoods, making them even more attractive to other potential buyers. As a property investor, buying in an aspirational location can be an excellent strategy, especially if you get in early before the area fully gentrifies. Over time, as the suburb continues to improve and attract more affluent residents, your investment is likely to appreciate in value.

3. Affordable Locations

Affordable locations are where most homeowners and many investors look because it’s where they can “afford” to buy. These are typically the outer suburbs or less desirable areas where property prices are lower.

There’s no doubt that some affordable areas can make good investment locations, especially those that benefit from the ripple effect from adjoining aspirational suburbs. Over time, these affordable areas can start to gentrify and become more desirable, leading to capital growth.

However, there’s a significant risk here. Many affordable locations underperform in terms of long-term capital growth and rental yield. This is often because the residents in these areas are financially stretched young families or lower-income earners who are only one or two pay checks away from financial trouble.

As an investor, it’s essential to approach affordable locations with caution. While the lower entry price might seem tempting, you need to consider the long-term growth potential. If the area doesn’t have the factors needed to support capital growth—such as good infrastructure, employment opportunities, and proximity to amenities—it might not be worth the risk. In many cases, these areas will never gentrify in your lifetime, and your property could end up being more of a liability than an asset.

4. Last Choice Locations

Finally, we have the last choice locations. These are the areas where people live because they have no other option—often due to social or economic circumstances. These are typically the most disadvantaged suburbs in a city, with higher crime rates, poor infrastructure, and limited access to amenities.

As a property investor, you should steer clear of these locations. The risks far outweigh any potential benefits. Properties in these areas often struggle to attract quality tenants, and capital growth is usually minimal, if it happens at all.

In these locations, you might find yourself dealing with constant maintenance issues, tenant turnover, and possibly even difficulties selling the property in the future. It’s simply not worth the headache. Your investment dollars are better spent elsewhere, in locations that offer more security and potential for growth.

Key Factors in Choosing the Right Location

Now that you understand the different types of locations, it’s time to dig deeper into what makes a location truly investment-grade. Finding the right location for your property investment involves more than just looking at the suburb’s name or its reputation. You need to consider several key factors that will influence the long-term success of your investment.

1. Good Demographics

When choosing an investment-grade location, one of the first things to look at is the demographics of the area. Who lives there, and what is their income level? Areas with good demographics—where resident incomes are growing faster than the state average—tend to be more stable and offer better long-term growth potential.

In the coming years, property markets are expected to become more fragmented. This means that blue-collar areas and lower socioeconomic neighbourhoods might suffer more from economic challenges like inflation. In contrast, areas with a more affluent population—those with stable and increasing incomes—are likely to remain more resilient.

For you as an investor, targeting areas with good demographics means you’re more likely to experience consistent demand for your property, both from buyers and renters. This stability translates into better rental returns and stronger capital growth over time.

2. Limited Supply

Another crucial factor to consider is the supply side of the equation. While population growth is often touted as a key driver of demand for property, it’s just as important to look at the supply of available land and housing.

Investment-grade locations typically have a limited supply of land or dwellings. These are often the inner and middle-ring suburbs of our capital cities, where there’s little room for new development. Because these areas are already built up, there’s a natural cap on the number of properties that can be added to the market.

This limited supply creates a strong demand for the existing properties, which drives up both capital growth and rental yields. In contrast, outer suburbs often have an almost unlimited supply of land and new houses. While these areas might seem attractive due to lower prices, the abundance of supply can suppress price growth, making them less favourable for long-term investment.

3. Strong Employment Opportunities

One of the best indicators of a good investment location is the availability of strong employment opportunities. Areas with a diverse range of job options nearby tend to attract and retain a population of working professionals and families. This stability helps maintain property values and ensures a steady pool of reliable tenants.

When you invest in a location with strong employment opportunities, you’re also investing in the future economic health of the area. Employment hubs—such as business districts, technology parks, or industrial centres—create a demand for housing that supports long-term growth.

Additionally, areas with a good mix of job opportunities tend to be more resilient during economic downturns. If one sector experiences a slowdown, the presence of other industries can help cushion the impact on the local property market. For you as an investor, this means a more stable and reliable return on your investment.

4. Good Infrastructure and Amenities

When you’re considering a location for your property investment, one of the most important factors to look at is the infrastructure and amenities in the area. Good infrastructure and amenities can make a location more desirable, which in turn drives up property values and ensures a steady demand from renters and buyers.

Infrastructure refers to the basic services and facilities that support a community, such as roads, public transport, schools, and hospitals. When an area has strong infrastructure, it’s easier for residents to get to work, access healthcare, and provide their children with a good education. These are all critical factors that make a location more attractive to potential tenants and buyers.

For example, properties located near major roads or public transport hubs are often more valuable because they offer easy access to the city centre or other employment areas. If you invest in a property that’s well-connected by public transport, you’ll likely find that it attracts a higher calibre of tenants, and you might even be able to command a premium rent.

Amenities are the recreational and cultural facilities that enhance the quality of life in an area, such as parks, restaurants, shopping centres, and entertainment venues. People are drawn to areas that offer a high quality of life, and they’re often willing to pay more to live in these neighbourhoods.

In fact, there’s a growing trend toward what’s known as the “20-minute neighbourhood.” This concept refers to areas where residents can access most of their daily needs—such as shopping, dining, and recreation—within a 20-minute walk or a short drive. These neighbourhoods are becoming increasingly popular, especially among younger generations who prioritise convenience and lifestyle.

As a property investor, targeting locations with good infrastructure and amenities is a smart strategy. These areas not only attract higher demand from renters and buyers, but they also tend to experience stronger capital growth over time. After all, people are always willing to pay a premium for convenience and a better quality of life.

5. Proximity and the Walkability Factor

Closely related to infrastructure and amenities is the concept of proximity and walkability. In today’s property market, walkability has become a key factor that can significantly influence property values and rental demand.

Proximity refers to how close a property is to important services and amenities. The closer a property is to schools, shopping centres, public transport, and other key services, the more desirable it becomes. Properties that are within walking distance of these amenities are particularly valuable because they offer convenience and lifestyle benefits that are highly sought after by tenants and buyers alike.

Walkability goes beyond just proximity—it’s about how easy and pleasant it is to walk around the neighbourhood. High walkability means that residents can comfortably walk to shops, parks, cafes, and public transport without needing to rely on a car. This is becoming increasingly important as more people prioritise sustainable living and reducing their carbon footprint.

Neighbourhoods with high walkability scores tend to experience greater demand and stronger capital growth. This is because these areas offer a lifestyle that appeals to a wide range of people, from young professionals to retirees. As a property investor, focusing on walkability can help you identify locations that are likely to perform well in the long run.

In fact, investment-grade locations with easy access to lifestyle precincts and high walkability have seen more than 36% growth over the past five years. This trend is expected to continue as more people look for convenience and lifestyle when choosing where to live.

By investing in a location that offers both proximity to amenities and high walkability, you’re positioning yourself to benefit from these ongoing market trends. You’ll not only attract quality tenants but also ensure that your property appreciates in value over time.

6. Gentrification

Gentrification is another key factor to consider when choosing a location for your property investment. Gentrification is the process by which a neighbourhood undergoes transformation as wealthier residents move in, leading to an increase in property values and improvements in the area’s infrastructure and amenities.

Gentrifying areas often start off as affordable or even last-choice locations, but over time, they attract new investment and development. This might begin with a few trendy cafes or boutiques opening up, followed by the renovation of older homes and the construction of new residential developments. As more affluent residents move in, the area begins to change, becoming more desirable and pushing up property prices.

For property investors like you, gentrification represents an opportunity to get in on the ground floor of a neighbourhood that’s on the rise. If you can identify an area that’s just starting to gentrify, you can buy property at a lower price and benefit from the capital growth as the area improves.

However, it’s important to note that gentrification doesn’t happen overnight. It can take years, even decades, for a neighbourhood to fully gentrify. But if you’re willing to be patient and hold onto your investment, the rewards can be substantial. Properties in gentrifying areas often see significant appreciation as the area becomes more attractive to higher-income buyers and renters.

One way to spot potential gentrification is to look for signs of new development, such as the opening of new businesses, renovations of older buildings, or improvements in local infrastructure. These are often indicators that an area is on the cusp of change and could be a good investment opportunity.

7. Low Crime Rates

Safety is a top priority for most people when choosing a place to live, and this is why low crime rates are a critical factor in determining the desirability of a location. Areas with low crime rates are far more appealing to both buyers and renters, which supports property values and can lead to higher rental yields.

When you invest in a location with low crime rates, you’re more likely to attract long-term tenants who are willing to pay a premium for peace of mind. Families, in particular, often prioritise safety when choosing a neighbourhood, which means properties in safe areas tend to be in higher demand.

On the other hand, areas with high crime rates can struggle to attract quality tenants, and property values may stagnate or even decline. As an investor, it’s important to thoroughly research the safety of a neighbourhood before making a purchase. Look at crime statistics, talk to local residents, and visit the area at different times of the day to get a feel for its safety.

In addition to making your property more attractive to tenants, investing in a safe neighbourhood can also reduce your costs as a landlord. Lower crime rates mean less risk of property damage, vandalism, or theft, which can help you save on maintenance and insurance costs.

Overall, choosing a location with low crime rates is a smart investment strategy that can help ensure the long-term success of your property portfolio.

Picking the Right Property in the Right Location

Now that you have a good understanding of what makes a location desirable for property investment, it’s time to talk about how to pick the right property within that location. Even in the best suburbs, not all properties are created equal. To maximise your investment, you need to be strategic about the type of property you choose.

1. Neighbour Pride

One of the first things to consider is the condition of the neighbouring properties. Do the neighbours take pride in their homes? Well-maintained lawns, clean driveways, and tidy exteriors are all signs that the residents care about their properties. This pride of ownership can have a positive impact on the value of your investment, as it indicates a stable and desirable neighbourhood.

When you buy a property in an area where the neighbours take good care of their homes, you’re more likely to see your property value appreciate over time. On the other hand, if the surrounding properties are poorly maintained, it could drag down the value of your investment and make it harder to attract quality tenants.

2. Sun Exposure

Sun exposure is another critical factor to consider when choosing a property. In Australia, a north-facing orientation is generally considered the best because it allows the home to receive ample natural light throughout the day. This not only makes the home more comfortable to live in but also reduces energy costs by minimising the need for artificial lighting and heating.

A property with good sun exposure is more attractive to buyers and renters, which can help you achieve a higher sale price or rental yield. When inspecting potential investment properties, pay attention to the orientation of the building and the amount of natural light it receives.

3. Other External Factors

Finally, it’s important to consider any external factors that could negatively affect the property’s value or desirability. These might include things like flight paths, traffic noise, or planned construction projects in the area.

For example, if the property is located near a busy road, it might suffer from constant traffic noise, which could make it less appealing to potential tenants. Similarly, if there’s a major construction project planned nearby, it could cause disruptions and impact the property’s value in the short term.

Before making a purchase, do your homework to identify any potential external factors that could affect your investment. Visit the property at different times of the day to get a sense of the noise levels, and check with the local council to see if there are any planned developments that could impact the area.

Why Location Is So Important

As we’ve discussed, the location of your property plays a crucial role in determining its long-term success as an investment. The right location can do around 80% of the heavy lifting when it comes to capital growth, while the wrong location can severely limit your potential returns.

A property in a sought-after neighbourhood, close to desirable amenities, and with low crime rates will generally command a higher price than a similar property in a less desirable area. Investment-grade properties will always be in demand by owner-occupiers and renters, especially in locations that are close to good infrastructure, employment opportunities, and lifestyle amenities.

On the other hand, if you choose a location that doesn’t offer these benefits, you could end up with a property that underperforms or even loses value over time. In real estate, it’s often said that a “rising tide lifts all ships,” but this isn’t always the case. While property markets as a whole may experience growth, not all areas will benefit equally. Properties in A-grade locations—those in discretionary and aspirational suburbs—are much more likely to outperform other segments of the market, even during challenging economic times.

The Bottom Line

When it comes to property investment, location truly is everything. By focusing on the right location, you’re setting yourself up for success, both in terms of capital growth and rental income. But it’s not just about picking any desirable suburb—you need to be strategic and look for areas that offer strong demographics, limited supply, good infrastructure and amenities, proximity, walkability, gentrification potential, and low crime rates.

Remember, not all properties within these locations are created equal, either. Pay attention to factors like neighbour pride, sun exposure, and potential external influences when selecting your investment. The more carefully you choose, the better your chances of achieving your financial goals.

At the end of the day, successful property investment isn’t about luck—it’s about making informed decisions based on solid research and understanding the market dynamics. By prioritising location in your investment strategy, you’re taking a crucial step toward building a strong and profitable property portfolio.

Final Thoughts

Investing in property is one of the most effective ways to build long-term wealth, but it’s essential to do it wisely. Location will always be a key driver of your property’s success, so take the time to thoroughly research the areas you’re considering and choose your investment with care.

If you’re unsure where to start or need expert guidance, don’t hesitate to reach out for professional advice. Working with experienced property advisors can help you avoid costly mistakes and ensure that you’re investing in the right places for maximum returns.

In conclusion, while there are many factors to consider when investing in property, location should always be at the top of your list. It’s the foundation upon which successful investments are built, and by choosing the right location, you’re positioning yourself for long-term success in the property market.

Ally Home Loans Pty Ltd is your ally in finance for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

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