Location is only a cliche because it is true

It’s a cliché that the first three rules of real estate are “location, location, location”, but most investors do not consider the multi-dimensional aspect of location when they are choosing a property to buy.

That’s the message from Wakelin Property Advisory director Monique Wakelin who said that most investors apply the cliché in a very superficial and subjective manner.

“When people talk about location, what they interpret that to be is ‘something that I like’ or ‘something that feels good to me’ rather than objectifying it and working out what a good location really means,” she explained.

“What does it look like from an investment point of view, rather than a subjective point of view? That is how to ask the right question, because investors, unless they are asking exactly the right question, are never in a million years going to get the right answers.”

So what defines a good location?

“It is about which suburbs have got underlying consistency of demand, capital growth performance, rental demand and architecture,” Wakelin continued.

“When you put all the pieces of the jigsaw together, those things have to make that particular location very difficult to replicate in a broad and general sense.

“For example, if you look at Fitzroy in Melbourne it is close to the city, it has a fabulous cultural life with lots of cafes and restaurants, it is very close to healthcare because it is so close to East Melbourne, it has got good local as well as CBD employment opportunities and the architecture is fairly consistent.

“The vast majority of it is fairly traditional period style architecture that is scarce. What I mean by that is if you start knocking over rows of terraces in Fitzroy, you can’t get them back. Once they are gone then they are gone. Even if you try and complete exactly the same row of terraces with the same character it just won’t look the same – it will stick out like a sore thumb.

“People like those locations and they are always in demand because of those characteristics. It would be very difficult to replicate that in Wantirna.”

Investors should consider each property and ensure it has attractive location features before purchasing.

“When you are talking about location you are talking about something that is multi-dimensional and that has to be given objectivity according to particular criteria,” Wakelin explained.

“You can substitute one of the criteria for something different. For example in Armadale you wouldn’t have the beach as you would in Port Melbourne or Elwood. But you would substitute the beach with something else and that something else would probably be the schools.

“You have to hit a number of criteria very specifically and you have to dig below the surface to find out what location actually means. What will the vast majority of the population be attracted to and need the vast majority of the time?”

The key to great capital growth was realising that the desirability of a particular location could increase over time, Wakelin noted.

“In Melbourne, before Citylink opened Kensington and Flemington were literally on the nose because of the abattoirs,” she said.

“What happened when Citylink came on stream? It became gentrified because the access to the city vastly improved. It wasn’t spaghetti junction anymore, the abattoirs moved out and the whole area became re-gentrified and it is now a fantastic location.

“It is now very attractive for young renovators to come in and renovate all these great little rows of cottages.”

But investors should be wary of picking ‘good’ suburbs and buying blindly within them, Wakelin warned. “The other dimension of location is that it is not about picking a whole suburb and throwing a dart at the whole area. You must also pick your mark within that suburb – there will be streets that are top-line streets and streets that are not,” she said.

“After that it is about refining your eye – getting in the car and driving and getting to know the suburb really well so that you know which areas are good and which you should stay away from.

“For example if you are in a part of Fitzroy where there is a pub nearby, would you purchase an investment property in the street surrounding it? You are exposing your property to drunk and disorderly damage.

“Even within a street you are going to get a variability of the desirability of a property. For example, in Hawthorn in one of the best streets – Harcourt St – there is a particular section of the street that is more valuable. In one part you would buy an investment property, but in the rest you wouldn’t because it has $2 and $3 million family homes, which is not what an investment property should be.”

So how should you choose the best location for your investment property?

“You should get advice,” Wakelin said.

“It is not just a question of getting information because there is so much information available you don’t know what to do with it sometimes. The real issue is being able to convert that information into knowledge and understanding and you can only do that with experience.

“I say to investors who say they want to do it themselves to pick one or two suburbs and get to know those suburbs inside out. Do that for a good three or four months before you buy. Drive and drive and walk and walk. Go to open for inspections and auctions and work out which streets are fetching the best prices. Those are the areas you need to invest in.”

And be wary of ‘bargains’.

“Let’s say you have two identical houses, one in a poor street in the suburb and one in the better street in the suburb,” Wakelin explained.

“The one with the worse location is going to be $50,000 - $80,000 cheaper than the fabulous one. But does that mean that the house in the poor street is a bargain? No, it means that it is substandard and it doesn’t cut it as an investment.

“There is no such thing as a bargain in a really good location. If you go bargain hunting, you will buy a lemon.”

What to look for

What your property should have:

• close to shops

• good access to public transport networks

• good recreational facilities

• close to schools (either private or public)

• vibrant street life and cafes and restaurants nearby

• architectural consistency

• a quiet street

What to avoid:

• main roads

• lots of traffic in surrounding streets

• commercial activity or industry

• a lot of noise

• unpleasant sights and smells

Thinking about locations

Port Melbourne: “It has the beach and a fabulous social and cultural life on the foreshore and it is close to the South Melbourne market. You have a predominance of really solid and traditional style period architecture, married up with some interesting apartments and it is close to the city, close to healthcare, shops and schools. It is very appealing and more people want to live there than there is ever going to be accommodation to satisfy demands.”

Armadale or Prahan: “They offer a more conservative way of life. It has access to fantastic private schools. You have the High St Armadale and High St Malvern shops and Glenferrie Road. You have direct transport into the city. It is relatively close to healthcare. And it has all of the infrastructure that you need. It is a different lifestyle again, but no less desirable.”