6 tips that will set you up for an investment property purchase
As an investment choice, property continues to be a favoured option. However, success is never guaranteed.
So, here are six pointers every investor should consider if seeking profitability through property investment. These tips will also assist in identifying the right investment property for you.
1. Don’t purchase with your heart
You need to approach this purchase with a different mindset to purchasing your own home. This is a decision that needs to be made solely with your head. You don’t need to be in love with the property you are buying, because your personal needs will be different to your tenants’. As much as tiny quirks in design might be your preference, not every tenant will want to rent a place with those quirks.
Another point to consider: don’t get caught up in passing trends. Find an investment property that has broad appeal, so it will be easy to replace tenants when one decides to move out.
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2. The right investment property in the right location
The location and type of property you buy will directly affect your rental income and capital growth. So, when looking for an investment, keep in mind all the facilities your tenants may require. Features such as sizeable bedrooms, ample storage space and off street parking.
One of the most valuable factors to consider is public transport and access to the CBD. Also look for offerings such as schools, parks, sports/leisure centres and retail precincts.
Consider the types of tenants you may want living in your property. If you prefer a family, a freestanding home in the suburbs is a likely choice. However, if you prefer students or young professionals, a well-located apartment is the more obvious choice. Freestanding properties, such as townhouses or units, may have stronger growth potential than apartments, such as those in high-volume buildings.
The InfoChoice Where Can I Buy Calculator, can help you quickly narrow down the best postcodes for your budget. Just enter your loan details and the state you are looking to purchase in, and the calculator will provide you with a comprehensive list of suburbs, along with their median home price and growth rate.
3. Invest in growth suburbs
The right investment property should see you investing in growth suburbs that typically have a high rental yield and a low vacancy rate. A significant factor in property investment is capital growth. Always search for areas that are expanding in terms of population, the economy, and local infrastructure. This is why CBDs and their surrounds are in such high demand as investment locations. Research the area. Learn about its vacancy rates, demographics and capital growth rates.
4. Choose low-maintenance properties
This is relatively straightforward. Find a property that is ready to rent out immediately. Look for properties that are in great shape or can be easily improved with a coat of paint or basic garden upgrade. Opt for a property that requires little maintenance. For instance, a large houses with a pool and manicured gardens will require more maintenance than a similar home on a smaller block with a simple lawn. Investigate any maintenance costs you are likely to incur before you buy. Keeping up with maintenance will be essential to attracting and retaining quality tenants.
5. Know what to pay
To ensure that you pay a reasonable price and to position yourself for healthy capital growth, research the market thoroughly. Search for suburbs that have recently seen strong prices and look for neighbouring suburbs that might be next in line.
Knowing what the rental income will be should be a key point in what you should pay for the property. The agent should be able to provide you with evidence of a property's rental price (if it had previously been an investment property). If not, the agent should have estimates of comparable properties in the area. You can also do the research yourself by searching for rentals in the area. In Victoria, the Real Estate Institute (REIV) provides quarterly snapshots of median rents charged according to suburb and the number of bedrooms. Each state will have its own real estate institute to draw information from.
6. Low vacancy rates and long-term tenants
Your pricing strategy needs to be considered very carefully. You may want to charge the highest rent possible, but if your tenant isn’t happy you may find yourself needing to find new tenants when each lease term has come to an end. Securing a happy long-term tenant at a slightly lower amount may be more profitable than charging higher rent.
Is it time to buy?
Choosing the right investment property requires a great deal of research, including knowing how much you are able to borrow, which you can determine by using the InfoChoice Home Loan Calculator.
It’s also wise to get advice from experienced investors and other experts in the industry. Don’t entrust your investment decisions to those with a vested interest in selling you something.
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This update is not financial advice. This article is general news and information.
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