Whether you see yourself as a bit of a property tycoon or you’re tentatively doing some research into buying your first investment property, you of course want to build up a successful portfolio that will give you a good return in the future.

But with so many factors to consider, how do you find the magic formula for a property that will give you the results you want?

One important thing to think about is how demographics might determine what the property market of the future will look like.

Although things like consumer preferences and interest rates do factor into the equation, it ultimately comes down to the fundamentals: the number of people needing a home, the area they want to live in, and how they want to live.

By staying on top of Australia’s demographic trends, you can understand how the market is changing and make a more informed decision when choosing an investment property.

So here are some of the trends Australia is currently experiencing, and the ways they could influence your investment:

1. Ageing population

Our baby boomers aren’t so baby any more, and neither are their children. In fact many now have empty nests and are looking to downsize as they retire from work and perhaps make plans to travel more.

While sea change and tree change are still the choice for some, many retirees are now seeing the appeal of secure and low-maintenance apartment living.

2. Changing population

The average household is becoming ever smaller as more people are living either on their own, as a couple, or as a single parent with dependent children.

The result of this trend is reduced demand for huge four-beds with endless gardens, and instead more demand for smaller, medium-density properties.

3. Expanding population

Our population has just hit 24 million and it’s predicted we’ll add another 4 million by 2026, despite slowing population growth.

Of the extra 4 million people arriving over the next 10 years, the vast majority – around 3.2 million people – will end up living in our capitals, mainly Melbourne (925,000); Sydney (820,000); Perth (710,000) and Brisbane (530,000).

The experts who know all about this stuff have worked out we’ll need about 1.72 million new homes to house all these extra people, and 75% of those (1.3 million) will be in our capitals, mainly in the form of higher-density housing.

It’s just as well, then, that high density housing is getting easier to supply, with building approvals coming through at almost the same rate as those for detached houses in Sydney and Melbourne especially, with Brisbane not far behind.

4. Struggling first homebuyers

It’s not exactly new news, but it’s getting harder and harder for first time buyers to secure a property because of soaring prices and tougher lending restrictions.

Australia’s capital cities have some of the least affordable housing in the world.

As a result, increasing numbers of first homebuyers are compromising on their preferences and opting to buy an apartment rather than a house, just for the sake of getting into the market.

Others are taking the option of becoming renting investors. They live where they want to (in a rented property that they can’t afford to buy), and meanwhile buy an apartment (which is affordable but not where they want to live) as an investment.

5. Changing preferences

Our perceptions of what makes the ideal home are changing with the generations.

Generation Y-ers are much more likely to want to live in the inner city or close to the CBD so they are conveniently located for work, socialising, and everything else the city has to offer. Apartment living is a good fit with this kind of lifestyle.

What does it all mean?

There are a few key points we can draw from these demographic and lifestyle trends.

Apartment living is no longer seen as the second-best option, reserved for those who have failed to secure a house; in fact, it’s becoming the dream that many Australians aspire to.

As the lifestyle preferences of Australians develop, so does the economy. There is a knock-on effect to the real estate market as these trends gather pace, and savvy investors will react accordingly.

It’s no longer all about having the greatest number of bedrooms on the biggest plot of land.

So now we’ve been through the basic theory behind the growing trend in apartment living. If this is all making sense so far, it’s time to start thinking about how you can invest your money wisely.

If you’re already at the stage of owning a decent property portfolio, then an inner city apartment could be a good way to diversify.

But wait! Before you sign anything…

We are NOT saying you should go out, snap up the first apartment you see, and wait for the cash to start rolling in. No no no no no.

Apartment investments are no different to their free-standing counterparts – there are good and bad ones and you need to do your research and due diligence to give yourself the best chance possible of making a good return.

You’ve no doubt heard talk of an apartment oversupply hitting inner-city areas in some capitals, particularly Melbourne, Brisbane and Perth. Industry experts have their differences in opinion over how severe the problem will turn out to be, but as the saying goes, there’s no smoke without fire (even if it’s a really small one).

The investment market has also been shaken up by recent changes to regulations, particularly those regarding foreign investors. With most banks now refusing to lend to foreign residents, we could soon be seeing supply significantly outweighing demand, with local homeowners and developers struggling to find buyers for their properties.

So how do you make sure your property stands out in the crowd?

One option is to avoid off-the-plan properties which are a dime a dozen and instead seek out a place with a bit more character in a sought-after area.

Do some research into the proportion of owner-occupied homes, and look for an area where the percentage is towards the higher end of the scale. If you’re competing with too many other rental properties, you might end up taking a hit from reduced rents and long vacant periods.

Finally, bear in mind that capital growth might not experience the same growth spurts in the immediate future as it has done in recent years, so don’t rely on this to add value to your property. Instead, search for a place with the potential to add value through renovation – something you have more control over.

With apartment living now a lifestyle choice that’s here to stay, it’s time to get strategic with your investments. As always, the team at Loop are here to help if you want to chat about your options with an expert.