A Finance blog by Paul Bennion.

The accepted rule that should always guide first time property investors in their buying decision is “location, location, location”. But to ensure your property is in demand by renters, it is also important to consider a property’s size relevant to its location and the local rental market.

The most recent study into social trends by the Australia Bureau of Statistics (ABS) showed that nearly half of all dwellings in Australia have surplus bedrooms.

The December 2011 Australian Social Trends report found that 44.7% of all Australian households had two or more bedrooms above their requirements in 2010, with Western Australia recording the highest proportion of excess bedrooms at 55.7%. More than half the households in the ACT also had surplus bedrooms (51.3%), while homes in the remaining states reported figures ranging between 47.5% (Queensland) and 32.3% in the Northern Territory.

These high rates of excess bedrooms are representative of the social trend of families becoming smaller, but people still believing that they need to live in larger homes.

The ABS study also found that on average there were just 2.5 persons per household in Australia.

For investors, it is important to consider the number of bedrooms in a property you may want to buy to ensure you purchase a house or apartment that is relevant for the demographics of the local property market.

For example, in inner city areas, one-bedroom one-bathroom homes are now very popular because more people are choosing to live alone. It could be a costly financial mistake to purchase a more expensive three-bedroom two-bathroom apartment in the same area with the view that there will be the same level of demand for tenants.

The same principle applies to house and land packages in the suburbs. In this scenario, it may be more appropriate to build a three-bedroom two-bathroom room rather than a four-bedroom two-bathroom property using the same floor space. This would increase the overall size of existing rooms and the potential appeal of the property to prospective tenants.

Before making any decisions, first time property investors should speak with reputable leasing agents in the local area to determine what size of home is most in demand for renters.