Taking the leap into investment property requires a dash of faith, but for the most part it's essential to undertake thorough research. Successful Australian property investors take a methodical approach, evaluating dwelling options, vacancy rates and the potential for capital gains, to name but a few factors.
Picking the perfect location
Capital cities such as Melbourne, Sydney and Brisbane are hot in investors' books, thanks to strong house price growth and diverse industries holding up the local economies.
For instance, the Queensland government is focussed on growing a "four-pillar economy", with attention on agriculture, construction, resources and tourism. It's thought that this varied approach, coupled with a goal of slashing red tape, will boost employment figures and the state's economic health. This could make property investment in Brisbane a solid option for many.
In Sydney, an environment of "high income growth and limited supply" has pushed real estate values sky-high, Commonwealth Bank's Jean-Paul Pelosi wrote on September 30.
For those with portfolios in the Harbour City, the market has been favourable. On one hand, strong capital growth enables investors to leverage their existing equity to extend their real estate interests, while would-be first-time buyers turn towards rental properties.
Beware of the mining slump
By contrast, some locations aren't as safe a bet. Small towns that have a focus on a single industry can be perceived as a potentially profitable investment choice. But they can also be very risky.
Mining towns are a classic example of where seemingly favourable investment property could experience a dramatic slump. New research from Newport Consulting shows Australia's mining sector has dropped to five-year lows, which could spur property buyers to consider locations that have more diverse industries, such as science and IT.
The Mining Business Outlook Report surveyed industry leaders, with a majority indicating that "the sector's future is now out of their control".
This is thanks to falling commodity prices, a challenging regulatory environment and falling demand. According to the report, 93 per cent of industry leaders don't feel optimistic about growth prospects over the coming year, marking a 50 per cent year-on-year increase.
"I don't expect any major new mining projects to commence in the next few years. There is wide consensus that commodity prices will continue to decline as more supply comes on stream globally, while the growth rate of demand for commodities slows," said economist Saul Eslake, in support of the report.
With mining on the decline, it's essential for investors to focus on the right areas when expanding their property portfolios.