Buying your dream home can often be an emotional decision—you may fall in love with the porch, the modern kitchen, or envision raising a family there. But when it comes to purchasing an investment property, logic must trump emotion. A property may look appealing on the surface, but without the right fundamentals, it could be a financial burden instead of an asset.
Here’s how to recognise and avoid bad investment properties.
Key Factors to Consider When Choosing an Investment Property
A property can either help you build wealth or limit your portfolio growth. Laying a strong foundation is critical if you want to expand beyond your first investment.
1. Location is Crucial
Location is non-negotiable in property investment. While some investors get fixated on the property itself, professionals understand that location drives performance. A modest home in a prime suburb is likely to outperform a luxury home in an inferior area.
Top-performing locations are typically:
- Close to CBDs or coastal areas
- Near lifestyle amenities like shops, parks, schools, and public transport
- In high-demand areas with limited new housing supply
Always review a suburb’s vacancy rate—a lower rate generally indicates strong rental demand and greater capital growth potential.
2. Understand Capital Growth Potential
Capital growth is the appreciation in a property’s value over time. For long-term wealth building, this is the most critical metric. Choose locations with a track record of strong growth, often due to:
- Gentrification
- Upgraded infrastructure
- Demographic shifts
While rental yield is important, capital growth should be your focus early in your investment journey.
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Characteristics of Poor-Performing Properties
3. Poor Location Despite High Specs
A beautifully renovated home in an undesirable area may have limited appeal and long-term value. Always prioritise location over features—you can improve a property, but you can’t change its surroundings.
4. High Vacancy Rates
Suburbs with high vacancy rates often suffer from oversupply, such as an influx of new high-rise developments. This makes it harder to secure tenants and maintain cash flow. A vacancy rate under 3% is ideal.
5. Low Land-to-Asset Ratio
Land appreciates; buildings depreciate. Investment properties with a high land-to-asset ratio—ideally 70% or higher—are more likely to deliver sustained capital growth. Established suburbs with character homes often outperform newly built dwellings.
6. Limited Owner-Occupier Appeal
The majority of buyers in the market are owner-occupiers. When a property appeals to this group, its resale value improves. Look for features like natural light, floorplan functionality, and curb appeal.
Property Grades: A, B, and C
- A-Grade Properties: In high-demand areas with strong fundamentals and scarcity appeal. These are typically owner-occupied and outperform the market.
- B-Grade Properties: In decent locations but with compromises (e.g., poor floorplan or lack of parking).
- C-Grade Properties: Poor location or design, difficult to rent or resell.
A-grade properties tend to outperform during booms and hold value during downturns.
Rental Yield vs. Capital Growth
While high-yield properties can improve short-term cash flow, they often lack long-term growth potential. In contrast, capital growth delivers compounding returns and equity—critical for financial freedom. Balance both, but lean into growth early in your journey.
Avoid Over-Reliance on Tax and Depreciation
Many first-time investors are drawn to off-the-plan apartments for tax advantages like depreciation. However, these benefits should be a bonus—not the reason for purchase. Often, these properties:
- Are over-supplied
- Lack scarcity
- Underperform on resale
Buying an investment property entails a number of considerations on your part. It is worth to note though that your decision must do good for your risk profile, personal investment goals and your current condition.
Is it affordable for you to buy an investment property and hold on to it? It is definitely unreasonable to purchase an investment property if the costs of holding on to it will have unfavourable effects on your current lifestyle and monthly cash flow.
As a general rule, you must thoroughly think about your personal financial status plus it’s best to discuss this with a qualified and competent financial adviser before you plunge into any major investment decision.
Inevitably, there are several factors to think about when making that investment property purchase, and so far, – we’ve only just begun.
Focus on growth first; then optimise for tax efficiency.
Want to Know the Best Locations to Buy Investment Properties?
There is really so much to learn in property investing and SuburbsFinder is here to help you. We offer our services to help you find the best location to buy investment properties and more importantly, identify the right property to have.
Take advantage of our fully customisable tool to help you find the best locations now. It lets you narrow down 15,000+ suburbs by combining all 40 data points as filters. It also lets you compare suburbs’ historical & current performance. And once you have identified the best location, our tool also lets you do feasibility studies of up to 5 properties all at the same time.
Save time, budget, and cover the full cycle of your investment property research workflow with Subursfinder.
When evaluating a potential investment:
- Check vacancy rates, capital growth trends, and location fundamentals
- Review land-to-asset ratio and demand from owner-occupiers
- Prioritise properties with potential for long-term appreciation
- Understand your personal cash flow and risk tolerance
And most importantly, seek professional advice before committing.
Use SuburbsFinder to Choose the Best Investment Locations
SuburbsFinder simplifies your search for high-performing suburbs and investment-grade properties. With access to over 15,000 suburbs and 40+ data filters, you can:
- Identify low-vacancy suburbs
- Compare capital growth and rental yield
- Run feasibility studies on up to five properties simultaneously
Watch: How to Find High Growth Suburbs in Seconds
It’s the most comprehensive property investment research tool in Australia, used by buyer’s agents, developers, and investors nationwide.
