Identifying investment grade property

Creating wealth through brick and mortar can only be realised by investing in the right property which suits our investment strategy. It is therefore crucial that we educate ourselves on how to identify an investment grade property which can bolster our journey towards financial freedom.

The definition of investment grade property is denoted by two significant attributes which are:

  1. Bearing a minimal risk to investors.
  2. Providing a solid investment return at a consistent level to investors.

Property which attracts only to investors is never regarded as investment grade property. It may be granted that high rental yield properties can help to minimise risk, service the holding expenses and produce additional income. However this normally comes at a cost of limited capital growth which is the key driver of generating solid investment return over a long term period.

The property market value is usually determined by owner occupiers who are willing to spend more money and buy with more emotions attached to the property. Consequently property which has a stronger appeal to this group tends to build a superior volume of competition when it is time to sell the property and is more likely to achieve a higher capital gain in value.

We may or may not compromise too much on the total investment return when buying positively geared property. Nevertheless, historical evidence shows that properties with strong growth are always going to outperform properties with strong yield in the long run and carrying a lower degree of risk at the same time.

We are urged to be excessively cautious when buying solely based on numbers. Instead of focusing too much on the rental returns, we should shift our attention to understand real estate from owner occupier perspective in order to achieve the best possible return on our investment. A bona fide investment grade property is a property with maximum owner occupier appeal.

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