6 factors to look for in an investment property by Andrew McKinnon
The main goal of an investment property is to grow wealth and generate a passive income. This means the things to look for in an ideal investment can be quite different from those you look for when buying yourself a place to live.
There are numerous advantages of property investment but it’s important to have a strategy and make dispassionate decisions based on what will give you the best returns. (Remember, you aren’t going to live in this property, some else will be).
With interest rates set to slowly increase, investors are currently active in the market looking to secure property at a reasonable fixed rate before further rises take place in the future.
Here are 6 key factors to help ensure your investment proves to be a good one.
1. Let’s talk capital growth
Put simply, capital growth is your property increasing in value over time.
There are several reasons why capital growth is attractive to property investors. In a rising property market, like we’ve seen over recent years, you may see your property increase in value by simply doing … nothing. Investing in up-and-coming suburbs with consistently high demand can sometimes achieve considerable capital growth over just a few years.
Why is looking at capital growth important now? Looking at capital growth can help you build a picture of what your capital gains (ie: how much you gain financially based on the capital growth of the property) may look like over time.
2. Negative V Positive Gearing explained
Depending on your situation, both positive and negative gearing are strategies that could work for you.
Negative gearing is when the ongoing costs of owning a property add up to more than the rental income it generates. Put simply, the property produces a loss each year.
Investors may choose to negatively gear as they can generally claim a tax deduction for the investment loss. The aim is for the capital growth to offset the loss in earlier years. If you're making an investment loss, it is still costing you money. You'll need to have cash from other sources, like your salary, to cover interest and expenses.
Not all investment properties are negatively geared. A property is positively geared if it earns an annual profit. That is, the rent outweighs the ongoing costs. Remember, however, that you will need to pay tax on this additional income.
3. Factoring in rental demand and yield
Renting out your investment property generates income and helps cover costs.
Areas with strong rental demand and yield is an important part of assessing the financial viability of an investment property.
Rental yield is a calculation of how profitable a property can be, based on the expected rental income balanced against the costs of owning and maintaining the property. These include mortgage repayments, strata fees, council fees, maintenance, and insurance. Ideally, you should have a steady, reliable rental income that goes some way towards covering these costs.
We can share the performance history of other similar properties, including vacancy rates, average rental yield, median weekly rent and its potential growth rate, plus what types of property are in demand with tenants, to help you find the right investment property for your budget.
4. Location, Location, Location
Let’s jump into a prospective tenant’s shoes. What will they be looking for in a rental property? Is proximity and convenient access to public transport, CBD’s, schools and universities be the priority or could it be more about lifestyle. Will the general neighbourhood vibe with local restaurants, bars and shops make the property more appealing to a tenant?
We will also consider local area development, if the area is likely to undergo development that will bring more retail and restaurants or there are big infrastructure projects that could mean more local jobs, these things may increase the attractiveness of the property’s location as well as its value.
Luckily, we have a variety of extremely appealing properties in sort after locations to show you. Call me today on 0438 010 485 to make an appointment.
5. Size of property
While the decision on whether to invest in a 1, 2 or 3 bedroom apartment will be largely determined by your budget, you should think about the size of property in the context of location and prospective tenants.
For example, a 1 bedroom apartment may see higher rental demand in areas near universities, where there’s usually a high volume of students looking to rent. It’s really important to understand the demographics of the area and choose accordingly.
That’s where our expert advice and guidance comes in, call me to make an appointment today.
6. Property features
Even though you may not be planning to live in this property, someone will be.
We will guide you on the property features that tenant’s usually look for. Features like a flexible floorplans, garage and storage, balconies with views, natural light, communal areas such as a rooftop terrace, or a simple home office space will go a long way in increasing the property’s rental value.