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When buying an investment property, there is generally a lot less emotion involved than when buying your own home. You'll want it to be in a good area, and to be a property that will produce sound yields and has potential for growth.
While you also want an investment property to be good quality and nice to live in, your tastes and feelings shouldn't come into play as you won't be the one living there. However, if it's possible that down the line you will want to downsize/upsize into your investment property, you should keep this in mind when looking at potential properties.
So what do you need to consider when purchasing an investment? Here's a handy breakdown.
Investors often consider capital growth when searching for an investment property. To determine capital growth potential, you need to be thinking about things like: what suburbs are close by, what amenities are around, whether there’s potential for more development, transport links etc. Is the area close to universities and good schools? Is there also the possibility that demand will outstrip supply?
For example, in well-connected areas earmarked for significant apartment development, houses are considered scarce, and therefore may always attract significant demand. For example, in places like Alexandria or Zetland in Sydney.
It’s things like the above that can generally impact future capital growth prospects.
Rental income is the other important factor. You want to purchase a property that will consistently rent so you can ensure a steady cash flow. You should also have the ability to increase the rental return each year if desired.
Rental rates are influenced by a number of factors, including:
While it’s not a home for you, it will still be a home for someone and so it should appeal to a broad range of possible tenants. Is it clean, in good condition and does it have a good layout? The property should flow from room to room; if it's not configured correctly, it may put tenants off.
Remember to also consider the age and condition of the property and facilities, as well as the common areas. Check the condition of the roof, the structure and the gardens. Make sure there are no leaks or dampness in the property, and that no major works need to be done before you can rent it out (unless you have taken this into consideration both financially and timewise).
If it can be rented out as is then that's great, but potential to renovate or revamp in the future should also be considered. The ability to add value to the property is a good tick, as it will increase rental returns. Don't immediately write off a property just because it needs a paint job or the kitchen cabinets need to be replaced - these are small fixes that can be done straight away with the prospect of bringing in higher rent.
It's recommended that you don't purchase an investment property in a location that you're not familiar or comfortable with. If you're purchasing out of your home city, do the research.
The same goes for if you're purchasing across town. Look at the other properties that are for sale and renting in the area, and speak to the local real estate agents for insights.
With any rental property, you want it to appeal to the most amount of tenants. Look for properties that offer that little something extra, like a second bathroom or a lock-up garage.
Also look at properties that appeal to many segments. Whether it's a young couple, a small family or retirees, you want your property to appeal to all markets.
For example, a building with level access and a lift will appeal to a retiree, as they may not be able to manage stairs too much longer. However, it will also appeal to a young couple looking to start a family. With a baby and groceries to manage, the lift will be much more attractive than three flights of stairs.
Investing in property is not a short-term matter - you should be in it for the long haul. It's important to make sure you can budget and maintain the property over the length of ownership, and while rent will be coming in, it's important to ensure you have the means to cover all payments, repairs, rates etc if your property is untenanted.
Blogs are written expressly for education purposes and content is based on the opinions of the authors or as otherwise cited. All information is current as at publication release and we take no responsibility for any factors that may change thereafter. Doorsteps Finance Pty Ltd and Doorsteps Solutions Pty Ltd do not accept any liability or responsibility whatsoever to any error or omission or any loss or damage of any kind sustained by a person or entity arising from the use of this information. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
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Disclaimer: Property reports contain property estimate data and information provided by RP Data Pty Ltd trading as CoreLogic Asia Pacific ABN 57 087 759 171 (CoreLogic) and OpenAgent Pty Ltd, which is general in nature. It is not a professional property valuation or advice to be relied upon. The actual market value of the subject property may differ. We and CoreLogic do not warrant the accuracy, currency or completeness of the data and information to the full extent permitted by law, each excludes all loss or damage howsoever arising (including through negligence) in connection with the information. You rely on the property estimate at your own risk.
Disclaimer: Doorsteps Finance Pty Ltd ACN 648 541 879 (credit representative no.531036) is authorised under Doorsteps Solutions Pty Ltd ACN 654 334 246, Australian Credit Licence 537369. Any credit application made through Doorsteps Finance Pty Ltd is subject to approval, terms and conditions, fees and charges.
