| What is Important when looking for an Investment Property
Investing in property should be about increasing your wealth and securing your financial future.
Although it is often a less emotional process than purchasing a family home, there are many pitfalls and factors to consider when looking for a quality investment property.
First and foremost, it is important that you work out and understand exactly what you want out of purchasing an investment property. Mostly these are pure financial decisions and goals. You may be wanting to invest using a number of different strategies.
You need to think like an investor. Unlike buying a family home, buying the investment property is purely a financial decision.
The importance of capital growth
Capital growth is the most common driver in property investment decisions. Meaning researching and choosing wisely in the purchasing process is absolutely vital.
Choosing a property that is likely to increase in value is the most important decision you will make, so buying at the right price is absolutely critical.
If you are using a good buyer’s agent and are patient and knowledgeable, you can acquire a quality investment property under its market value. Do your research, nothing can replace local knowledge and the patience to wait for the right property for the right price.
A good buyers agent can be a great asset in finding you off-market or distressed property opportunities. Most property markets are cyclical and will experience periods of changes in both supply and demand. So it is important to buy in a buyers market and sell in a sellers market.Purchase what you can afford. Don’t stretch yourself financially and run the risk of “having” to sell at a discount because you have to.
As part of assessing the investment potential of a property, it is important to determine the “Rental Yield”. This is one of the best financial indicators of an investment property.
Rental Yield is a quick calculation of what you will make on your investment property, shown as a percentage figure . The basic premise is to calculate the difference between your costs and the income you receive from the property.
By accurately calculating your property rental yield, it will give you a clear indication of your ongoing returns. This obviously helps you understand if the property is right for your investment goals.
It is important to research yields for different properties in different suburbs, so you can find a property with good rental yield.
There are 2 Rental Yields that you need to calculate
1 Gross Rental Yield &
2 Net Rental Yield
- Please see our separate detailed post on “Rental Yields”
Cash Flow Strategy
Investment property cash flow is basically “Income less Expenses”. Just like any business.
Most investors are looking for a cash flow positive investment – Also called “Positively Geared”. This is when the income from the property exceeds the interest repayments and other outgoing costs.
Negative gearing on the other hand is when your rental return is less than your outgoings and interest. If your property is negatively geared you are possibly eligible for a tax concession.
- Please see our separate post on “Cash Flow Strategy”
Where Should You Buy?
As the saying goes, location is everything. Location is the vital ingredient for both capital growth and rental yield. Proximity to good schools, shops, public transport, healthcare and other amenities will be important in determining what rent you can charge and how much your property will go up in value.
By using a good buyers agent, they will have access to professional tools that will be able to help you with your decision on where to buy
What Type of Property?
The type of property you decide to invest in will depend on your budget, your lifestyle, location and your investment goals.
Houses are often more expensive and require more up keep, but often show better capital growth. Where units are normally less expensive, they do have body corporate or strata fees and sometimes don’t provide the capital growth of houses.
What are Tenants Looking for?
This once again is closely related to location and your budget. Families will be looking for different things than millennials or retirees. You need to do your research and take into account what your potential tenant will be looking for.
Do Your Research
A good Buyers Agent will be able access professional research tools to provide you detailed reports to assist in your decision making process.