What Is An ‘Investment Grade” Property?

 

If you’re new to residential property investment or are looking to build a successful portfolio you may have come across the term “investment grade” property in your research. Often property experts will talk about good investment opportunities as “investment grade” to distinguish them from other real estate where the capital growth or rental income may not be as high. Essentially property is considered investment grade if it offers the investor a number of advantages in the market. These can include location, type of property, desirability to tenants, condition of the building and its affordability. Focusing on a number of priorities or criteria when looking for suitable property to invest in helps to discount certain types of real estate and will also help avoid making emotionally based decisions. Let’s look at some of these criteria in more detail.

Location And Desirability

There is no doubt that the location of a property will have one of the biggest impacts on its affordability, it’s desirability to tenants and the growth of its value over the long term. As an example, apartments that are within a “sweet spot” of a major capital city – generally considered to be around 10 to 20 minutes commuting distance from home to work – are relatively low risk investments with high “intrinsic value” because they tend to hold their value well and will always be attractive to a professional class of tenant. Obviously the closer you are to local amenities, transport, entertainment and shopping the more expensive the property. However you will be able to offset your mortgage with higher weekly rental income. Property in less populated locations and outside the fringe of the inner city will be more affordable in the short term but provide a riskier investment over the long term.

One other factor in the desirability of a residential property investment that is often overlooked is security. For many tenants, especially those living by themselves, finding a property with security features such as gates, secure intercom systems and alarms is likely to be high on their priority list. In terms of apartments, the majority of larger scale new developments these days are built with these security features in mind.

Condition Of The Property

It is sometimes tempting to look at old buildings such as houses and apartments and think about the value you could add, and indeed this idea is fuelling the current boom in property renovations (helped along in part by the popularity of reality tv programs). More than often, however, people looking for long term investment opportunities will regret buying an older property when they discover the litany of expensive problems that must be fixed – think crumbling foundations, cracked walls, leaking roofs and damp. Trying to fix an old property will also be made more complicated if you have bought an apartment within a complex, with sinking funds and strata issues.

One of the most sensible property investment strategies is to look for new property or even off the plan developments, thereby ensuring that the building and its surroundings will be in excellent condition when trying to attract tenants. Ongoing maintenance costs will also be lower, with less expensive repair bills that can put a severe dent in an investor’s income and cash reserves.

 

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