INVESTMENT STOCK VS INVESTMENT GRADE

Choosing which type of property to invest in depends on your available capital, your risk appetite and your income and cash flow requirements. If you want to be a successful property investor– make sure you truly understand the difference between Investment Stock and Investment Grade, before going on the hunt.

Investment stocks are properties that are scored low in scarcity. They are in abundance and often if you miss out on one, there is another one with similar floor plans and land size right next to it. They are what the property marketers and developers sell in bulk to naïve investors, but are not “investment grade” because they have little owner occupier appeal. They lack scarcity and are usually bought at a premium with little to no opportunity to add value. Just because you can live in a property and rent it out doesn’t mean it’s a good investment.

There are a lot of properties out there that are specifically built for investment purposes (investment stock) and we are certainly not low in supply on new developments but these properties do not necessarily guarantee good returns and growth (Investment grade). There is a lot more science behind asset selection and some investors are potentially becoming victims of bad property investment advice, particularly if they don’t know the difference.

While there are a lot of properties built specifically for the investor market, many high rise new developments that are littering our cities – are mostly not “investment grade.”

Going back to the basics of supply and demand. If there are tens or hundreds of properties similar to yours and someone is forced to sell – That will put pressure on and influences the value of these similar properties.

Investment grades, are properties that rank higher in the scarcity scale. They are the properties that are in demand by owner occupiers and often has an emotional value to it.

Large properties tend to have more income-generating opportunities and better characteristics of an investment grade property. Most major lenders have size restrictions on loans for investment properties because smaller properties tend to attract less capital growth.

Investing in real estate is more lucrative when the property is already in position to generate revenue or can be modified to generate revenue with relatively little expense. This means many investment grade properties tend to be tenant ready at the time of purchase and are unique.

Apart from location being critical in determining whether a property is investment grade, it helps if the property has the following lifestyle drivers:

• Appeal to a wide range of affluent owner occupiers
• Are in the right location within a short walking distance to lifestyle amenities such as cafes, shops, restaurants and parks. And are close to public transport – a factor that will become more important in the future as our population grows, our roads become more congested and people will want to reduce commuting time
• Have street appeal as well as a favourable aspect or good views
• Offer security – by being located in the right suburbs as well as having security features such as gates, intercoms and alarms
• Offer secure off street car parking
• Have the potential to add value through renovations

Whether you are a first time investor or an experienced property investor, the bottom line is – buying the right investment grade property is key. This increases your chance of better financial returns in the next, less buoyant stage of the property cycle.

If your home or investment loan hasn’t been reviewed for a few years, now is the perfect time to request a home loan health check to ensure your longer term financial goals are on track. For an honest and unbiased opinion, talk to Think and Grow Finance today on 03 8390 5855 or email mitesh@thinkandgrowfinance.com.au