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The Ultimate Guide To Buying An Investment Property in 2025 · The Follio Property Podcast

• 0:00
  And does a good quality investment asset look different from a good quality principal place asset? People spend months, sometimes years, trying to find the right home for them to live in. Yet they will listen to an Instagram reel or a podcast and put their faith in someone they've never met before and go and buy something within the week. Not us, though.
• 0:18
  No, what you don't buy is far more important than what you actually end up buying. As a group, collectively, we inspect 250 properties a week. Of those, we may buy a handful, and that's because 70% of the properties we inspect fail due diligence. Sleep over for a night. Well, yeah, yeah. That's strange. You're listening to the Folio Property Podcast. I'm Rhys Beddle, and I'm here each week with my co-host, Lachlan Delahunty.
• 0:46
  If you're enjoying the podcast, do us a favor, hit like, subscribe and leave a comment so we can grow this channel. Lachlan, today, let's talk about property selection, asset selection. It's important. Very important. People get it wrong. 100%. I think we see a lot of people coming to us who have made the wrong decision and we also see people that have made the right decision in different markets. I thought it'd be good to identify to those potential clients what they should be looking for.
• 1:14
  We do portfolio reviews regularly, right? And it's really hard to undo five years of bad behavior and the wrong asset selection. It takes us longer to realign that portfolio and get them in the right direction.
• 1:28
  If people can do it right from the beginning, you sort of set yourself up and really shorten your horizon towards your goals. Absolutely. And you see people buying in markets, rising markets, and they've done well, but it's just the market has done a lot of the heavy lifting. There's a lot of luck. Yeah. Like I said, there's a lot of expert investors out there that may have just been lucky, which is fantastic. But luck will only get you so far. Over multiple decades of investing, you will see the rise and fall of accidental investors or people that have fluked the market.
• 1:57
  What should investors be looking at from a macro standpoint? So understanding research fundamentals is super important. We talk about it all the time on the podcast is understanding the drivers of markets and timing cycles. So we go into specific markets often, so I'm not going to go through the macro economy of Australia, but understanding what drives markets and it comes down to supply and demand.
• 2:21
  you know, simplistic stuff in reality, but it's looking at those data sets that we track regularly. What drives demand? Fundamentally, it's population growth. It's a strong economy. It's job creation. It's unemployment. So these are the key triggers that we're looking to attract on a macro level. And then obviously overlaying that with the supply side of the equation, you know, stock on market, days on market, but also what is the pipeline? Building commencements is one thing,
• 2:48
  and the building approvals is you know the silent assassin in the background that's giving us a two-year horizon to forecast out what's taking place in each particular suburb across australia what's the forecast of supply like for the next 18 months two years three years forecast that out and overlay that with population growth forecasts you start to get a really clear picture of what markets are going to be moving based on those fundamentals alone
• 3:15
  Yeah. And would you, I know we've spoken about on previous podcasts before, and we're very passionate about being open to investing outside your border. Is there particular indicators you can look at in a market that maybe is specific to local areas, not just to the actual capital city or the overriding data is going to be the key things that people should be looking at in terms of asset selection?
• 3:38
  No, there is. And even in a macro level in terms of a city maybe going through a stagnation period, a good indication of that was Melbourne 18 months ago. You could argue that Sydney in some parts of the market or New South Wales have gone through for a long time a period of stagnation.
• 3:59
  Because of micro fundamentals that happen within that suburb and infrastructure spending is a key element. So what we do as a business is you're aware, Rhys, we track the average infrastructure spending per person in every suburb across Australia. And when there's a disproportionate amount of spend in a particular area, and I'll give you a context...
• 4:20
  most markets may look at $1,500 to $2,000 a year in infrastructure spending per person. If you see an area where the average infrastructure spend is $15,000 per person, well, obviously that's going to have a huge impact to that local dynamic. And that could be schools, that could be lifestyle drivers, it might be a shopping centre. And these may spike and trough depending on what the government is spending at that particular time. But if you can time...
• 4:47
  that infrastructure boom in that particular localized area and time it well, enter and exit, you can, you know, you can really play your local market well. Yeah. How did like, how would your average punter educate themselves on, on those sorts of things? Is there particular areas they should be researching to, to be, to be on, I guess, in the know with those sorts of things, or is it purely like data research houses? Like we're spending close to a million dollars a year this year on research. So like,
• 5:13
  there's enough data out that you can start to paint a picture but what we pay to get that suburb data per person you know it's probably not something that the average punter wants to do but it's interesting for us but if you come back to it if you can overlay that micro data
• 5:29
  with the macro fundamentals. So all of a sudden you're buying in a suburb in Australia that on a macro level, the city's gonna go on a run because the timing of that macro cycle is on point. And you can time that market within a market. So let's start really granular. Get the right asset in the right street or the right suburb
• 5:50
  in the right portion of the market at the right time, that's where all those things start to align. And it's not easy to do. And if you get one of those things wrong, well, you're probably better off getting it wrong at the granular level than you are at the macro level. And I'm a big believer in that. So that's why we want to dissect on a suburb level where people should be investing around Australia. What about asset type selection in terms of that strategy?
• 6:15
  Could there be certain markets when you're looking at the data that houses are the asset that's going to see the most growth? Or can you flip it on units? Or is there a way to track that trend? Or is the common conception is usually units go on a run after a house is going to run?
• 6:32
  No, not at all. It's trying to understand the runway in every particular market and sub-market. So obviously, all the information and data that we release to our clients, it's really breaking up sub-markets and we use houses versus units versus apartments as three examples.
• 6:48
  We can understand that there is a runway in every particular market, and it's not always the case. But recently, was it 18 months, two years ago, we took a really strong position in Brisbane units and Perth units. And people ask, well, you haven't been in a business historically that's purchased units. No, we're very much an established property company.
• 7:08
  But when you looked at the runway data, and yes, in these situations, the housing markets had run incredibly hard, and the gap between houses and units was so exceptional that, you know, I take it exceptional. The gaps between houses and units had never been that great in both of those markets.
• 7:26
  It seemed like an opportunity. But then you overlay that with, okay, what's the risk with units or sort of that medium to low density multi-risk complexes that we invested in? The risk is an oversupply. But then we overlay that with the building complex.
• 7:41
  commencements and then even further foresight. What are the building approvals in this space? What are we forecasting for the next two to three years? And then we could clearly identify that there's going to be a huge undersupply for that smaller density, so for that higher density accommodation that suits young professionals, that suits downsizers. People from affordability perspective as well. Without a doubt. So there was a real opportunity and it's no surprise that units over the last 12 months, CoreLogic just released recently...
• 8:10
  late last month that units have significantly outperformed houses across Australia, and that's only been compounded in Queensland and Western Australia. So hindsight, it's easy to say we got that right.
• 8:21
  When you're in the moment and you're looking at the data, and for us as a business, units wasn't an investment asset class that we were too interested in, but the data was too compelling not to get exposure to it. I think you've summarized that beautifully in terms of some of the fundamentals. What about in terms of actual what to look at in an asset as well? Yeah.
• 8:41
  That kind of, I think from what you've been explaining there, I've got a good understanding on why we select certain markets and down to even a suburb level. But what about in terms of an asset? What should you be looking at? What's a good quality investment asset? And does a good quality investment asset look different from a good quality principal place asset?
• 8:59
  Yeah, so this is the thing. People spend months, sometimes years, trying to find the right home for them to live in, yet they will listen to an Instagram reel or a podcast and put their faith in someone they've never met before and go and buy something within the week. Not us, though.
• 9:15
  No, but people listening to this need to be cautious, even listen to us, listen with caution, right? Not because we're gonna do the wrong thing, but you gotta build trust and know, you've gotta spend the time, energy and effort. And that's why majority investors make more money out of their prime place for residents than they do their investments. And that's a sad statistic because it means they're taking a lot of time and care in picking the right asset for themselves.
• 9:44
  yet they'll on a whim go and invest in something that they have, we're not going to live in it, so therefore it doesn't matter. And I think that's a huge mistake because the same fundamentals that you look for in a primary place of residence that attracts you to that locality, that attracts you from an aesthetic point of view, floor layout, land area, the things you want as a family,
• 10:03
  are the same fundamentals that are going to drive that investment property. And I think this is the biggest myth in the market. Everyone's like, the best type of assets are going and buying in sub-regional areas and the way the buyers agents go in there and inflate prizes, get in, get out, time the markets. And that's not correct. For sustainable growth, you want to buy in areas that attract owner-occupiers because that's how you get sustainable growth over the long term. So those same fundamentals, like I said, I kept referring back to it, that you look for in a home is the same thing we look for in an investment property.
• 10:32
  Because at the height of the market, that's who's gonna pay the most for that property, an emotional loan occupier. But then if there is periods of uncertainty, if there is global events that impact prices, people still need somewhere to live. So you're always gonna be able to trade that property. We don't wanna be, and there is some uncertain times, right? So we need to be, at this point in the cycle in Australia, I think we need to be as cautious as ever and be more diligent in terms of what we're buying. And I think,
• 10:58
  A common investor, you love when I talk about the accidental landlord, which is the upgrader. But another common investor that I see is people buying areas close to the house because they want to be able to see it. But not necessarily looking at those fundamentals that you mentioned, but I think that's a key factor.
• 11:15
  Some key points that you've said there that I think a lot of people probably wouldn't take into account when they are looking at investment is that doesn't even have that owner-occupier appeal from multiple regions. It does, and often I hear, well, I'm not gonna live in it. No, you're not, but someone is. And the person we sell that property to in three, five, 10, 15 years down the track, will likely, will hopefully wanna live in it. If we're trying to trade to investors, they're always gonna pick the eyes through it and try to get it for a cheap price. So if it doesn't appeal to an owner-occupier, we're not buying it as a business.
• 11:43
  Besides the owner-occupier appeal, is there any other key sort of fundamentals you should be looking at when selecting an asset? A common mistake is people failing to do DD. And we see this far too often.