6 Ways to Determine a Property’s Investment Potential

A property’s past sales history can offer valuable insights into its capital growth over time. Consistent price appreciation indicates strong demand and a solid investment. Tools like CoreLogic RP Data or Pricefinder can help you review recent sales trends for a specific property or suburb.  

Why it matters: Past growth is a strong indicator of future performance, particularly in desirable locations with ongoing development or strong population growth. .

Rental yield is one of the most important measures for any property investor. It tells you how much rental income the property generates annually as a percentage of its purchase price. High rental yields are essential for positive cash flow, helping cover mortgage repayments and property expenses.  

How to calculate rental yield: 

Gross yield = (Annual rental income ÷ property purchase price) × 100  

For a more accurate picture, calculate the net yield by factoring in expenses like council rates, maintenance and property management fees.  

Why it matters: A high yield provides immediate returns and cushions against interest rate rises or market downturns. 

The old real estate adage ‘Location, Location, Location’ remains true. A property’s location directly impacts its investment potential. Areas with strong infrastructure, employment opportunities and proximity to schools, shops and transport hubs consistently attract tenants and buyers.  

What to look for:  

• Suburbs with population growth and planned infrastructure projects.  
• Low vacancy rates, which signal strong rental demand.  
• Gentrifying areas (suburbs undergoing a renaissance or transformation through factors like infrastructure, green spaces and amenities) where property values are on the rise.  

Why it matters: The right location drives both capital growth and rental demand, ensuring long-term returns on your investment.

Market trends like supply and demand, interest rates and broader economic conditions provide a snapshot of how the property might perform in the future. Look for areas where demand outpaces supply, as this creates upward pressure on both rental prices and property values.  

Key factors to analyse:  

• Population growth and employment rates.  
• Local development plans, such as new transport links or commercial hubs.  
• Rental market data, including vacancy rates and average rents.  

Why it matters: Staying ahead of market trends helps you identify high-growth opportunities and avoid areas with oversupply or stagnant demand.

The property’s condition and age can significantly affect its investment potential. Newer properties require less maintenance and may attract tenants who prefer modern features and lower maintenance needs, while older homes could offer renovation opportunities to add value.  

What to consider:  

• Major repairs or renovations that may be required.  
• Costs associated with ongoing maintenance.  
• Opportunities for cosmetic upgrades (e.g., new paint, modern appliances) to increase rental returns.  

Why it matters: Well-maintained properties attract quality tenants and help you justify higher rental rates, while value-add renovations can improve the property’s capital value and future growth potential.

Properties with development potential can offer significant long-term returns. Look for opportunities to subdivide, build a granny flat or make additions that increase the property’s value and rental income.  

What to check:  

• Zoning laws and local council regulations.  
• Block size and feasibility of additions or subdivisions.  
• Demand for multi-dwelling or dual-income properties in the area.  

Why it matters: Development opportunities allow you to unlock the full value of your investment and maximise returns beyond just rental income.