“What should I be looking for in an investment property?”
As property strategists, this is one of the questions that we get asked most often, and it’s easy to see why — there is a lot that goes into making a smart property investment.
This is why we have used our extensive experience of property investment in Australia to compile a list of five things you need to take on board if you want to learn how to invest in real estate successfully.
1. Know what you want to achieve
Our first tip is not so much about investment properties, but rather about the investor — you. Before buying an investment property, you should make sure that you have a clear understanding of your financial goals. This is something Power of Property will always do before working with someone to build a property portfolio — help you to create a clear picture of where you want to be in the future, and then develop a personalised investment strategy that will enable you to achieve it.
Investment goals naturally need to be both practicable and attainable, so we take into account factors like your age, income, family commitments and lifestyle to establish what your financial capabilities are with regard to an investment property. It is only then that we begin the search for the right investment opportunity for you. We never encourage you to buy a property that is beyond your reach, and so this is why the first thing to look for in an investment property should always be how much you can comfortably afford to borrow and repay.
2. Location matters — a lot
What’s the ultimate goal of buying an investment property? For most people, it’s about improving your financial future by creating a regular income through renting the property out. Being able to do this is largely reliant on your property being located in an area in which people want to live.
Location is therefore always one of the keys to making a smart property investment. However, the criteria you apply when deciding on a ‘good’ location may well be different to those that are in play when you are looking for a home for you and your family to live in. Likewise, when looking at suitable investment properties, you should be prepared to look beyond your home city or state, if necessary.
If you are unsure about how to invest in property, or even if you have some experience in this field, it can be difficult to find out relevant and useful information about properties and developments in areas or parts of the country with which you are not familiar.
That’s where Power of Property can help. Our experience and knowledge means we have access to exclusive reports and industry information that help you make informed decisions about suitable areas for property investment right across Australia. As a result, you have access to the best potential investment properties no matter where they (or you) are located.
3. Vacancy rates and rental yields
As part of your real estate investing research, you need to consider factors such as the vacancy rates in any area in which you are thinking about buying, as well as the rental yield with which the property is likely to provide you.
An area with a low vacancy rate will mean that it is likely in demand with renters, but this does not always or automatically equate to a good investment. It needs to be balanced against rental yield, which is essentially the amount of money generated by your investment property annually, expressed as a percentage of its value.
Decisions with regard to rental yield also need to be weighed against your investment goals. For most property investors, a high rental yield is desirable because it means positive cash flow, an improvement in your overall financial position, and greater access to further finance that can be used to grow your property portfolio.
Alternatively, while a lower rental yield will likely mean that less immediate cash flow and income are produced, such a property may nevertheless have potential for greater capital growth over time, meaning a larger profit when you come to sell.
Although these calculations can seem complex and perhaps even a little daunting, at Power of Property we provide both new and experienced investors with extensive industry knowledge and information that enable you to make the right sort of smart property investment to suit your specific goals and circumstances.
4. Picking the right type of property
As important as location is when you are thinking about how to invest in property, the type of property you opt for is also crucial. The property style, e.g., apartment, family home, duplex, etc., needs to be in demand in that particular location, and so meet the needs of the demographic.
Our extensive property research means that we can advise you in this somewhat specialist area of knowledge, as well as give you insights about projected population growth and changes, and how likely it is that the type of property you buy will continue to be in demand into the future.
5. Buy a property that is ready to go
If the aim of establishing or growing your property portfolio is to bring in steady, regular income as soon as possible, then buying an investment property that needs to be renovated before it can be let is not something that we would usually advise. Likewise, a property that will require significant ongoing maintenance may be one that consumes too much of your time and money to make it financially viable in the long term.
Having renovated properties ourselves, we know the time, money and effort that is required, and for first time investors, this does not always align with your financial goals. If you already have a decent sized portfolio, or can afford to spend time and plough additional funds into an investment property, perhaps with the aim of ‘flipping’ it in the short term, buying somewhere that needs to be renovated might be an option.
However, in the majority of cases we would recommend ‘turn key’ investment properties’, i.e., houses, units or apartments that are brand new or are maintained to a sufficiently high standard that they can be made available on the rental market straight away, and then require minimal maintenance (at least in the short term) to keep them up to scratch.
Talk to Power of Property about making the right property investment
If you want to find out more about what to look for in an investment property in 2020, then please don’t hesitate to get in touch.
Call Michael Lawton on 0407 785 560 or Danielle Charlton on 0411 268 795, or book online to arrange a free personal property investment strategy session.