A lucrative property investment is one that outperforms the market in capital growth. And, as John McGrath, CEO of McGrath Estate Agents says, while yield is important, the serious windfall comes when you identify a hyper-growth area through solid research, observation and calculated risk.

“Imagine if you’d bought a couple of Paddington terraces in Sydney in the 1970s and held them until today,” explains McGrath by way of example. “Very few ‘astute buyers’ wanted to touch the area in the 1970s. So look around and try to unearth the next Paddington. Generally, property within a 10km radius of a major CBD or close to city beaches (10km to15km from the CBD) will yield the greatest growth so try to find areas that are relatively unwanted and have signs of growth [in that zone].”

Along with location, look for areas with a village feel near cultural assets (universities, galleries, historical precincts, grand period homes), notes McGrath. And when the research box ticking is done? Go with your gut instinct and be prepared to take a calculated risk, he advises.

Property in volatile times

Definitely do your research first. Chris Gray, founder of Empire, swears by this. His business buys and renovates properties on behalf of high-income clients, and he has personal experience snapping up real estate, as well. Gray transformed $35,000 into a $3.5 million property portfolio in under nine years, allowing him to retire from full-time work at the age of 31. Given a particularly high proportion of small businesses face tough financial times during their first five years of operation, a backup plan in the form of bricks-and-mortar investment can help circumvent business volatility, says Gray. “As the properties increase in value, the equity can be used to buy more property or you can inject it into the business to help it expand.”

Investment tactics

Gray’s tips to build wealth through property are:

• Wealth generation is often not derived solely from an income. Consider buying solid appreciating assets.
• Don’t fear the gear. Debt can be good, provided you manage it correctly. Use it to buy the right assets for a cash flow buffer.
• You’re better off paying a fair price for a blue chip property in a blue chip suburb than paying less for a cheap property in a cheap suburb that no one really wants.
• Always get an independent valuation before you buy. If a lending institution doesn’t think it’s worth the money, it’s probably not.
• Buy when you can afford to buy and hold on. Property on average operates on a seven year buy-and-sell cycle.
• Invest in expert advice – this can save you paying for mistakes.

Real estate winners

When weighing up where to buy real estate for an investment, Gray says there are two choices:

1. Try to pick the next hot spot. This can be hard, even for the property experts. If it all works out, great. If not, you could get a property that remains stagnant for many years.
2. Go for a sure bet – a median priced property five to 15 kilometres from a CBD (Sydney, Melbourne, Brisbane or Perth). Median-priced properties in an area like this are much more likely to grow consistently decade after decade. And sticking at the median price rather than the cheap or luxury end ensures the majority of people can afford to rent or buy the properties.

Portfolio pointers

If you’re exploring the idea of building a property portfolio but have limited knowledge, Gray suggests hiring a professional to source the properties and handle any refurbishments can be money well spent. “Hiring professionals may cost you some money initially but will make you more money in the long term as the professionals can buy better investments for less and add more value with skilled trades people.”