The most important part of insuring a purchase will be successful is your own knowledge. There is a lot of free advice out there, much of it based on truth but owing more to catchy sloganeering than truly helpful information, "buy the worst house on the best street" being typical of what I am talking about.

It is essential to analyse trends in property appreciation over the last 20 years for your city. Like in the sharemarket, the best returns can be had by chasing after investments that have always consistently outperformed the average gain. Volatility in gains should be as small as possible, just like a stock you want something that has produced these gains at approximately the same rate each year, as opposed to a 60% jump in one year and very little before or hence. In the case of real estate, standard deviation of returns is a pretty good approximation of risk for most cases. In stocks Warren Buffett et al. would argue that the risk of a stock is proportional to how much above book value you pay for the investment. Such topics are harder to quantify with property, the land value is of course speculative, though at least you can estimate rebuilding costs. Volatility is a great way to look at risk with property because you do it on borrowed funds (usually). If you overpaid, and an interest rate rise makes the mortgage unaffordable, then you know that an area with historically high volatility is probably going to be the first, and the furthest, to fall.

For optimal capital growth, a property must be located in the right area and bought at the right time. Suburbs appreciate in value more when they offer something in limited supply. A totally ordinary suburb will not do quite as well as a suburb located near water for example. There are only so many houses that can sit overlooking a river, and water has always been one of the major factors that have accelerated appreciation rates.

Proximity and quality of schools, low crime rates, good public transport, proximity and quality of shops, proximity to employment and recreational facilities all affect the price of an area. To get a good feel for facilities in an area make a point of taking public transport at least once to see the quality and convenience of the services.

If a local school has an excellent academic reputation the surrounding suburb may benefit, as families move into the district so as to be zoned to attend that school. Conversely schools with a very bad reputation are highly damaging to an area as affluent families will move away to make sure their children attend a better school.

Also a boon is being located in a suburb very near to a university, this will place the property in prime territory to take advantage of the lucrative overseas student rental market, and it is not unusual for real estate agents to work such areas giving unsolicited offers to residents to sell up to clients they have supposedly standing by looking for property.

A quiet leafy tree lined street with well kept gardens shows residents care about presentation and this street will do better than one where gardens are unkempt and old Toranas sit rusting on blocks. Ample well maintained parkland and trees add to values as well. Traffic is a major issue and purchasers should be aware that despite the real estate agent's logic that "someone has to live there" you will never do as well investing in houses fronting or near a busy street as you will in an area where traffic cannot be heard. "Blue Chip" (ie rich) areas tend to do very well in terms of capital gains especially during economic boom times, but also can have rather large falls when the economy turns down. Buying in a definitely up-market suburb is a good idea, but special attention must be paid to the "property cycle", as values in these areas in particular tend to move quickly in bullish times but stagnate for a long time afterwards.

Distance from town is important, while Australians prefer houses rather than units, flats or townhouses, they want to live near the city. Outer suburbs will not appreciate as rapidly as suburbs nearer the city. It is possible though, that a glut of inner city apartments may emerge as developers convert commercial buildings to expensive apartment blocks for sale primarily to the investor market.

Try to break down figures further, what type of house shows the best gain, is there a trend here? Are small houses appreciating better than large ones, what number of bedrooms and bathrooms is optimal? This is not something that can be answered without specifically looking at the area in question. Apartments are considered quite appropriate in densely populated city areas, but in the suburbs are often a magnet for poverty and social decay. Only a specific analysis of the areas you are interested in can give the answers as to which properties do the best in terms of returns. At any rate in the long term the block is the more important factor, you can fix the house but the main road out the front is there to stay.

A check with the local real estate agent will tell you how many rental properties are in the area, areas with very low rental rates may well have very low demand at any rate, whereas very high numbers of rental properties lead to greater competition for tenants and may depress rental rates. Be sure to check with the agent what percentage of rental homes on their books are presently unoccupied, areas with high occupancy rates are obviously better, a figure of less than 3% vacancy should be your cutoff. Bear in mind, however, seasonal variations such as Christmas when overseas students return home for a while, showing up as a temporary blip in vacancies.

Houses built before 19 July 1985 can be a poor choice for long term holding investment purposes because a building depreciation allowance cannot be claimed. Areas that are likely to be rezoned to a higher density benefit from accelerated capital gains, as investors move in ready to develop units, and areas close to (but not necessarily in) the city do the same.

Urban renewal projects have a beneficial effect on capital gains, a common technique is to follow the money, find out where future upgrade projects are going to be carried out and consider the adjacent suburbs. What is the amount of government/low income housing in the area, is this number increasing or decreasing? Are large tracts of crown land in the vicinity that the government eventually intends to develop into new housing estates? If so try to find out as much as possible about long term planning for that land, if the area is attractive a property developer might put an upmarket estate there, dragging the prices of surrounding areas up with it, but if the planning calls for large tracts of cheap low-income housing then the future might not be so bright.

Optimal value for money on improvements is usually only made by keeping the quality of the property broadly in line with the quality of other houses in the area. Improving a property beyond that point usually brings about the law of diminishing returns and is usually futile. Obviously to improve the capital value of a home repairs should be made to whatever is broken, but home improvements that actually create value are more oriented toward useful features rather than cosmetic touches. Units like air-conditioners and reticulation can be fully depreciated over their first few years and will produce cashflow benefits and most likely an improvement in rent chargeable, a calculation of the deductible amount compared to how much a tenant is willing to pay extra in rent, as well as a possible estimate of the capital gains that may result from such a purchase will determine if the improvement is really worthwhile.

There are really just three things that make profits in a property, normal inflation related capital appreciation, income from rent and changes in circumstance (upgrading, to the house or to the area). In the long term inflation is fairly dependable as a means of increasing prices, rent will rise with inflation but to anticipate a change in circumstance is where good research and renovation strategy comes in.

In real estate in general the ways of making money include bargain purchase (finding an owner in a bad situation that will sell for below market value), value adding (renovations etc.) and capital appreciation.