Apart from obvious blue ribbon addresses that most people can’t afford, how do ordinary investors know whether they are buying in a location that will appreciate? (break to website)

The ultimate criterion used to measure potential capital growth has become somewhat of a cliché that can be summed up in one word - Location. But which location is the right one?

Experienced investors usually look for proximity to services or potential services such as transport, schools and other amenities, as well as areas of employment.

Those who want even more support for their choice often analyse demographic trends so they can pinpoint areas of future housing need. For example it is possible to work out how many people in any given year are reaching what statisticians call the formation age. Those born twenty five years ago are now statistically ready to enter the housing market, either to rent or to buy - obviously creating demand. Investors should get to know how property supply/demand cycles work and look at the historical supply/demand cycle for their chosen area and how this pattern relates to housing cycles generally.

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Experienced investors predict the lows and buy when the market is low. Yet this is the very time when many novice investors decide to sell their one and only property and invest somewhere else. Successful investors not only hold on to their property long term thereby maximising gain and income/cost ratio, they buy more properties whenever their accountant/adviser gives them the go-ahead, especially when the market is low.

Another investment indicator is rental vacancy rates. Areas where vacancies are low are usually good areas for investment because rental income will be most secure. Furthermore capital gain is likely to be sound; prices increase because many renters are forced to buy creating extra demand.

No single indicator tells the whole story. The rental market in many areas has just been through a period of high vacancy rates, yet property prices have been rising rapidly and enormous capital gains have been made by many people. As in any other field of human endeavour the luck factor can be minimised if people know that there are several indicators to consider. It also pays to seek advice from a wide range of sources: accountants, real estate agents, financial planners and other investors.