We use the term “A-Grade” a lot, but what does this really mean, and how do we distinguish between A-Grade and other grades?
In this Buyer’s Market, it’s easy to buy a bargain property. The critical element that buyers need to focus on now relates to the quality of the property.
Anyone can buy a bargain, but determining whether the property is a situational bargain vs a compromised bargain is the challenge.
Some property investment firms have specific programs for grading properties. Others have sophisticated systems they’ve built to categorise a property with ratings.
The difficulty with applying a specific score to a property is that different owners, tenants, age groups, family-types and demographic segments will favour differing elements of a property in any given area.
Applying a score is as much art as it is science.
Our approach when scoring a property is to separate the “Must-Have” Criteria from the “Nice-To-Have’s”. The former are the elements that we will not compromise on. Depending on the city, region, investor’s tolerance for maintenance/improvement, and the target tenant, our Must-Have list usually comprises elements as follows:
- Proximity to shops/village/cafes
- Walking distance to public transport
- Structurally sound dwelling
- Quiet street with pretty streetscape
- Well-run Owners Corporation (if applicable)
- A idyllic floor plan
The property cannot make the shortlist if it is missing any of the Must-Have’s.
Right features the beautiful Yarraville Village “pop up park” where locals can enjoy all of the surrounding cafes and theatre.
From here, our scorecard will strengthen if the property offers a number of Nice-To-Have’s. For example, some of these elements would certainly deem a stronger grade if comparing two purchase-worthy properties side by side;
- North-facing rear
- Upgraded modern kitchen and/or bathroom
- Rear right of way (if applicable)
- Additional storage (ie. shed, attic)
- Ducted or hydronic heating
- Effective cooling
- Secure yard
Knowing when to apply a higher ranking on the importance of the Nice-To-Have’s is vital too. For some locations, tenant demographics or dwelling types, a particular feature may carry a heavier weighting than for others. For example, a family home in Ballarat will be deemed to score highly if it has a secure yard and a powered shed. However the powered shed will not necessarily carry the same importance for an inner urban tenant in a capital city.
Selecting a bargain property with a compromise that can’t be altered is a significant risk. Not only will the property under-perform when contrasted to a better quality asset, but it will likely exhibit more challenges for long-term leasing, and difficulties if and when the investor tries to sell it. Buyers are applying hefty scrutiny in our current market, and the compromised properties are easy to spot. They are either languishing on the market with high days on market metrics, selling for a ridiculously low price, or showing a history of short ownership cycles.
In this marketplace, it’s critical to know what investment property options to say no to.
