Property provides three things:

1.    Growth
2.    Income
3.    Risk

It is very rare to find all three attributes in the one property, and indeed, usually you have to choose the best two out of the three.

Lets say you wanted a high degree of growth, with lower risk. Obviously you would then have to sacrifice on the income side of things .A typical example of this would be say a property in say, Baulkham Hills, Sydney. A couple of years ago, research had indicated fairly strong growth, especially with the changing demographics in the area. The rental return, however, was far lower than a property bought in say Liverpool, as the prices were lower in this area in comparison. Buying in Baulkham Hills assured that you would get the growth, with lower risk, but you sacrificed the income. I.e your holding costs were higher. ( Note, I am not advocating that you go out and buy in these areas, as these may not suit your particular circumstances, and I have used these areas merely to illustrate a point).

Another way of looking at the above is to understand that this is a negative cash flow property. In other words, it is costing you money out of your pocket to hold this, while you wait for capital growth to happen. Therefore, the research of the area is absolutely crucial, to ensure that the money you outlay is outstripped significantly by the capital growth that you will experience in the property.

Another way of investing in property is to buy one where the income is higher than all your outgoings, in other words, the property is putting money IN your pocket on a weekly basis after all your mortgage and associated payments. And you guessed it; you are either sacrificing growth, or taking a higher risk. Such properties can be located usually in mining  or regional towns.

Obviously, if you are looking at buying in these areas, you need to do quite a bit of research to ensure that the area does not “close down” on you if it is dependant on just the one industry. An example of this would be investment properties bought in Forbes, NSW, where when the abattoir closed, people started moving away in droves in search of jobs, which resulted in a lot of vacant properties, and plunging prices, a very good illustration of the risk you face when investing in these sort of areas without doing proper research.

It is rare, but not impossible, to find investment properties where all three aspects are perfect, i.e. the property has growth, has positive cash flow (income) and low risk.

When investing in property, it is imperative that you look at what you want to achieve before starting to look for a property.

Victor Kumar specializes in helping property investors set up finance strategies to invest safely and successfully. To contact him, call 1300 302 166 or visit www.rightgroup.biz.