Tips & Solutions

Is investing in a Blue Chip Home right for you?

Real estate has always been considered a reliable option when building a financial nest egg through assets. One of the emerging property investment choices for seasoned investors and market newcomers is “Blue Chip Homes”.  These high-quality, well-established properties in prime locations are expected to retain their value and provide consistent long-term returns. In this article, we’ll delve into some of the advantages and disadvantages of investing in a Blue Chip Home so you can also decide if it’s the right choice for you.

Why invest in a Blue Chip Home

As Blue Chip Homes are located in established, desirable neighbourhoods with a history of steady growth, they offer investment stability and low risk. “These types of homes generally experience lower volatility in their value compared to riskier investments,” says Jaime Pratt, head of PM at VPM. “This tends to mean they’re a safer option for those more risk-averse investors.” 

Properties in prime locations also tend to appreciate well over time due to their high demand and limited supply. According to Jaime, investing in a Blue Chip Home can offer the potential for long-term capital appreciation, helping you build wealth as markets change and improve over time.

Jaime advises that Blue Chip Homes often provide a stable rental income stream, which may assist in controlling cash flow for investors. “Blue Chip Homes traditionally attract high-quality tenants who are willing to pay a premium for the location and quality of the property”, she says.

“Due to their desirability and high demand, Blue Chip Homes are also generally more liquid than other investment properties, meaning that if you need to sell the property quickly, you’ll likely have a ready line of interested buyers.”

“Likewise, Blue Chip Homes attract lower vacancy rates because of their demand. You’ll experience reduced periods of lost rental income, a higher rate of tenants ready to rent and, therefore, a more stable investment experience,” Jaime explains.

What to consider when investing in a Blue Chip Home

Having worked closely with clients as they decided what type of property to invest in, Jaime always likes to lay out all the pros and cons.

“Blue Chip Homes sounds like a great investment on the surface, but you need to consider whether it’s the right investment for you and your situation. You need to keep in mind they are typically priced higher than properties in less prestigious locations, which makes it more difficult to afford for investors with limited capital or those looking for more price-sensitive entry points.”

Rental income stability is always top of mind for any investor, and whilst these homes provide a stable rental income, the rental yield, the rental income as a percentage of the property’s value, may be relatively lower compared to investments in other locations. This could result in a slower return on investment, which may affect your cash flow.

Jaime also explains that while Blue Chip Homes are considered a less risky investment option, they are not immune to market fluctuations. “Economic downturns or shifts in market preferences can impact property values, even in prime locations,” she says.

Investing in a Blue Chip Home can tie up a significant portion of your investment portfolio in a single asset. This can limit your ability to diversify across various investments and asset classes, potentially increasing the risk of your overall portfolio.

High-quality homes often come with premium features and fixtures, possibly with higher maintenance costs. To maintain these high standards, renovations and repairs can be expensive, affecting your potential returns.

Our tips for investing in a Blue Chip Home

Jaime advises her clients to start by conducting thorough market research that includes the neighbourhood’s past performance, future development plans, and local amenities to ensure the property aligns with their investment objectives.

“You should also clearly understand your financial capabilities and limitations and factor in things like changing mortgage rates, taxes, and any regular or predicted maintenance costs,” she says.

“Investing in Blue Chip Homes requires a long-term perspective to reap the benefits of appreciation and rental income potential fully.”

She also recommends seeking expert guidance from real estate professionals, financial advisors, and property managers so you can make informed decisions and mitigate any risks.

Look at ways to add value to the home when viewing it. You want to consider Blue Chip Homes with the potential for minor improvements that can enhance the property’s value without compromising its historical or aesthetic significance.

Jaime suggests that investing in a Blue Chip Home can be an attractive option for those seeking a stable and potentially appreciating investment. Still, ultimately, the decision to invest in a Blue Chip Home should align with your financial goals, risk tolerance, and investment strategy. 

“Be sure to do your research, talk to those in the know and carefully assess your financial capabilities before making any investment decisions. By doing so, you can position yourself up for a successful and rewarding real estate investment journey.”