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The costs of compromise: should you buy in ‘secondary’ locations?

Sunday, 10th Feb 2019

Have you ever thought about buying a property in a great suburb even though that property is located next to a main road or rail line?

Suburb location is an incredibly important factor in determining the success of an investment property, and for those with a strict budget, buying a property in close proximity to main roads, rail lines or busy complexes may seem like a compromise worth taking if it means entering their suburb of choice at a more affordable level. These properties typically transact at a lower price point and can therefore hold strong appeal for buyers – after all, you’re effectively getting more for your money, right?

Whilst buying in these ‘secondary’ locations may seem like a bargain on the surface, investing in a compromised property can be an inherently risky strategy for investors, and one that should be approached with caution for those looking to achieve long-term value. After all, these properties don’t come at a lower cost for no reason. So what are the downsides of buying on busy roads? And what impact could these compromises have on the long-term performance of your investment property?

secondary location

Why less desirable?

There are a number of reasons as to why ‘secondary’ properties are generally considered less desirable than the average property in a given suburb. One of the most obvious drawbacks is the increased noise pollution and risks associated with higher levels of traffic in these areas. Whilst noise pollution is in itself a big deterrent for many owners and tenants, the higher exposure of these properties and the greater level of footfall that accompanies this can also translate into reduced privacy for owners.

For properties located on arterial roles, the traffic congestion and the wider implications that accompany this also shouldn’t be underestimated. With higher levels of traffic, residents could find themselves waiting lengthy periods of time just to exit their property. In some cases, the property’s driveway may also be limited from one side of the road due to bollards or islands, presenting an additional difficulty and risk when leaving the property during peak hours. On busy roads, in particular, it’s not uncommon for road widening to take place to create an extra lane to accommodate this increased volume of traffic, which could in turn result in reduced setbacks for existing properties and, in extreme cases, the resumption of private land.

Aside from the impact of greater levels of traffic, many of these areas are also subject to higher zoning due to their transit-orientated positioning. If your property is located on or adjacent to an arterial thoroughfare, there is therefore a stronger possibility that the surrounding land may be developed into higher density residential and/or commercial complexes, which will almost certainly impact the value of your property by lowering its appeal.

 A bigger problem for investors?

Whilst living next to a busy road or complex can present its own set of problems for owners and tenants, these properties can hold even greater implications for investors looking to purchase such assets as part of their investment strategy. Whilst property in itself is not the most liquid of assets, those situated in secondary locations will generally take  longer to sell than ordinary properties, and especially so in weaker market conditions. This ultimately comes down to the diminished market of buyers that are willing to purchase such properties. Whilst the issues above are in themselves enough to off-put many prospective owners, demographics such as families in particular are generally less willing to buy in busy road locations due to the safety and privacy issues that come with them. Also, because of typically longer days on market, investors may be required to discount the property in order to make the sale and splash out more on marketing costs in the meantime.

Diminished market aside, arguably the biggest problem when buying in secondary locations is the limits this can place on the long-term growth potential of a property. Due to their reduced appeal amongst prospective buyers, these properties generally don’t tend to experience as high levels of capital growth as the average property in the suburb, and in some cases will even stagnate in value. Investors shouldn’t therefore buy these properties with the outlook that they are securing a bargain deal that will one day rise in value and realign with the average price for that suburb, because the truth is these properties are not underpriced in the first place – they are priced according to demand. For the majority of investors who are pursuing a capital growth strategy, a property located on a quieter street with strong rental prospects and higher on-sale appeal will generally constitute a safer and higher potential purchase.

Look towards alternative options

Location is an incredibly important factor in determining success in property, but it also comes down to more than just the suburb in which a property resides. If you are considering investing in a compromised location, it’s therefore vital that you understand the potential implications this can have on the long-term performance of your property. The compromise may be worth the cost for an owner-occupier looking to enjoy the lifestyle benefits of a particular suburb, but those looking to leverage long-term growth will likely need to look towards alternative and safer investment options to achieve their property goals. Even for owner occupiers, compromising on their top suburb of choice and looking towards neighboring locations with similar lifestyle benefits and a lower entry point (but perhaps less prestige) will likely lead to a stronger long-term performance, and one that leaves you financially better off in the long run.