There’s a lot to consider when you’re looking to purchase an investment property. Before you begin it’s important to get yourself in the right frame of mind. It’s easy to become emotionally invested but you need to put your personal feelings aside. Purchasing an investment property is about what will appeal to renters, not you. It’s a financial decision based on research and future returns.
Once you’re ready to begin your search, here are the top three things to look for in an investment property:
We’ve all heard the saying ‘location, location, location’. But what exactly makes for a good location? Here are some key factors that increase the desirability and value of a location and property:
- Close proximity to amenities – for example schools, universities, public transport, shops, restaurants, cafes, parks and medical facilities.
- Close proximity to a major city – ten kilometres away from the CBD/capital city is always highly sought after and typically delivers strong returns. Whilst prices may be higher, look for emerging suburbs with strong growth potential.
- Strong job market – Locations with growing employment opportunities tend to attract more people and thus a higher pool of potential tenants.
- Planned infrastructure – Plans for new housing, shopping centres, business parks or transport facilities are all good signs that it’s a growth area.
- Population growth – A strong job market and planned infrastructure can lead to population growth and hence an ongoing tenant pool. Consequently, as population grows infrastructure improves, creates employment opportunities and further attracts more people to the area.
Regardless of whether you’re looking to purchase an apartment, townhouse or house and land package, features of the property to consider include:
- Amenities – Look for practical, sought afters inclusions like an internal laundry or garage/parking spot that will improve the everyday quality of living.
- Layout – Ensure there is ample storage space and look for something with a balcony or courtyard to increase the overall square footage.
- Views – Whilst not all views are made equal, avoid properties that look into a wall or anything undesirable.
- Size – Look for something at least 45m2 in size otherwise you may experience difficulty securing finance. Lenders may take the view that a smaller property offers less appeal and is therefore considered inferior security.
- Age – As a property investor there are benefits to purchasing a new property such as claiming depreciation as a tax deduction.
This is the main reason you purchase an investment property, for its returns. It’s important to do your research and look at the following:
- Rental income – Find out the average rent in the area for similar properties. If charging the average rent is not going to cover your investment loan and other expenses you may wish to keep looking. Otherwise, you need to ask yourself whether you are comfortable with a negatively geared property and if the tax incentives make it a sound investment.
- Capital growth – Capital growth is the increase in value of an asset or investment over time. It is one of the most fundamental objectives for a property investor. Research the annual capital growth of the area to see how it has performed. It is important to note however that past performance is not an indication of future returns.
- Vacancy rates – The vacancy rate is a measure of how many rental properties in a location are currently without a tenant and is usually expressed as a percentage. A low vacancy rate means strong tenant demand to rental property supply.
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