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What is an A-Grade Investment Property?

Why do some properties significantly outperform others with regard to capital growth?

Why are some properties always in strong demand and sell quickly?

These are what I’d call “A-grade” properties.

But what sets these exceptional properties apart from the rest, and how can investors uncover these hidden gems that consistently outperform market averages?

As our property markets move out of the slump phase of the property cycle, we will experience fragmented markets where some properties will outperform while others will languish.

This will be very different from the days of the property boom of 2020-221 when almost every property in Australia rose in value by as much as 30%.

As I said, 2023 will be a different story.

We’ve now moved through the downturn phase of the property cycle and all research houses are reporting rising prices around Australia.

But not all properties are selling well or quickly – we’re now seeing a flight to quality across as buyers remain cautious.

That’s why it’s more important than ever for property investors to focus on A-grade property investments.

So let’s look at exactly what an A-grade property is and why it’s so important to only own this class of property.

What is an A-grade property?

A-grade properties are not necessarily located in the most expensive suburbs and don’t all come with a multimillion-dollar price tag.

In fact, what makes an A-grade property in a particular suburb may not be appropriate for a different demographic in a different suburb, however, this type of property will always have a depth of buyers who want to buy it, regardless of the market conditions.

In general, when looking for a property, it’s very rare to find the “ideal” property, so buyers usually need to make some compromises.

When they stumble across an A-grade property, they rarely need to make any or many compromises as it tends to “tick all the boxes”.

On the other hand with a B-grade property, they have to compromise on a number of factors such as living on the wrong side of the street, or maybe not having a north-facing orientation; while many compromises are made when purchasing a C-great property like living on a busy through road or having an impractical floor plan.

Now B-grade properties may still have a lot going for them, and during hot property markets they still perform well, but their second location within their suburb or the less-than-perfect attributes of these properties means they will slump more in downtimes when buyers and tenants are more choosey.

B-grade properties would generally be those in the right suburb, but not quite in the area of that suburb that buyers prefer.

B-grade properties might lack parking, have a more complicated floor plan, need renovation or sit outside that highly desired “20-minute neighbourhood”.

Put simply, B-grade properties generally have most of the right fundamentals of an A-grade property but are lacking what it takes to make the A-grade criteria.

Then there are C-grade properties – these are to be avoided unless they’re in a great neighbourhood and your intention is to demolish the property and replace it with something more appropriate for the location.

However, in general, C-grade properties are lesser-grade properties located on busy streets, in or adjacent to a light industrial area, or in a suburb just starting to gentrify.

They can also be in pockets surrounded by undesirable dwellings such as commission housing, commercial areas or high-density growth zones.

These are properties that, even with significant renovation, still wouldn’t meet the standards of an A-grade or even B-grade property.

Buying House

7 qualities that make for an A-grade property

  1. Quality

It goes without saying that the quality and condition of the construction of the house have a significant influence over whether it is an A-grade property or not.

Grade properties are quality builds in good condition.

  1. Scarcity

While cookie-cutter-style houses might be desirable for some, from an investment point of view they don’t make good sense.

While the quality and condition of the house itself are important, the scarcity factor is just as much so because when it comes to selling, if there are a lot of buildings the same as yours on the market at the same time, it could undermine the value.

The era that which the property was built tends to lead the pack and period homes like Victorian and Edwardian are scarce and have high buyer appeal.

Capital growth on this style of dwelling is usually higher than in more contemporary constructions.

  1. Natural light

A property with a northern orientation is always the most sought-after because it gives an abundance of natural light.

Western-facing yards are still popular and prove a very strong second option.

Foreign Buyers

  1. Good floor plan

A-grade properties generally have a well-thought-out floor plan which flows throughout the house.

Think dining which flows to an outside al-fresco in the back yard and good-sized bedrooms located together with central bathrooms.

Buyers are willing to pay more for properties with a symmetric and convenient layout.

  1. Privacy

Properties which are able to offer an element of privacy would be far superior to a property that is overlooked or surrounded by high-density buildings.

  1. Land

And there is more to an A-grade property than just the building itself.

The land characteristics, particularly the land-to-building ratio is also important.

That’s because A-grade properties are not overcapitalise with expensive buildings on small blocks of land.

First Home Buyers

  1. Location

A-grade properties are generally found next to other A-grade properties, on quiet and well-maintained streets as opposed to on busy roads or in undesirable areas.

Now it’s all very well meeting all the criteria for an A-grade property, but unless it’s in a premium location then it still wouldn’t be considered investment-grade.

Having said that, it doesn’t have to be located in the most expensive suburb but the location must offer proximity to transport, amenities and open spaces – remember the 20-minute neighbourhood we’ve talked so much about?

After all, the ability to work, live and play all within 20 minutes reach is the new gold standard desirable lifestyle.

This includes things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.

You will find these are often in the gentrifying aspirational lifestyle suburbs of our capital cities and people will pay a premium to either own a property in these locations or rent property in these locations.

Many inner suburbs of Australia’s capital cities and parts of their middle suburbs already meet a 20-minute neighbourhood test.

However, very few of the outer suburbs would do so.

Why is it so important for an investment property to be A-grade?

When the property market is strong (like we’ve seen in the past few years) nearly all properties sell quickly and at a good price because the highly competitive market creates a fear of missing out (FOMO) among buyers.

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