You’ll often hear it said that the three most important factors in choosing a home to live in are ‘location, location, and location’.  It’s true for investment properties too – where you buy can be just as important as, or even more important than, what you buy.  Factors to think about are:

• Good areas for rental properties
• Should you buy in your local area?
• Expensive versus cheaper areas.

Good areas for rental properties

Some areas are always popular with renters.  These include:

• Suburbs near hospitals or universities (because there is usually a high turnover of doctors, nurses and academic staff)
• Homes in popular school zones
• Areas near good public transport or with good public transport links
• Areas close to city centres, shops and other facilities.

That is not to say that properties outside these areas will not be good investments.  However, many renters do look to rent in areas with one or more of the characteristics above.  QV Insider is a good tool to help you compare different areas from an investment perspective.

Should you buy in your local area?

Many investors prefer to buy in their local area, for a number of reasons:

• They will have a better knowledge of the area than outsiders and will know the more or less desirable parts of their area (those locations which are more attractive to tenants, can attract higher rents, and provide better capital gain). They may therefore be able to ‘buy better’ – i.e. identify well-priced properties in the better areas.
• They are likely to have better, more informed knowledge of potential rental levels.
• If they intend to manage the property themselves, being closer is a real advantage.  They can more easily keep an eye on the property, and they are likely to have better awareness of local tradesperson networks for property maintenance.

On the other hand, investors may choose to look for property outside their own areas, because of:

• Better capital gain potential in other areas.
• High property prices in major centres, which has reduced rental yields in those areas.

Expensive versus cheaper areas

Investors should remember that an investment property does not necessarily need to be somewhere they would choose to live themselves. 

Generally speaking, properties in cheaper areas provide a better rental yield.  That’s because there is a limit to the amount of rent landlords can charge for more expensive properties.  Often the rent you can charge on a cheaper property is greater as a percentage of the purchase price, than for a more expensive property. On the other hand, properties in cheaper areas may not produce the same capital gain as a property in a more sought-after area.

This material is for information purposes only. You should seek professional advice related to your individual circumstances. While The National Bank has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, The National Bank does not accept any responsibility or liability arising from your use of this information. Our lending criteria, terms, conditions and fees apply.