What to Look for in an Investment Property

Investing in residential property is a very popular way of planning for the future and it can be extremely rewarding. The key of course is choosing the right investment property in the first place. If you are not experienced in this area it can be difficult to know where to begin and with such an expensive purchase trial and error is not really an option. Our guide looks at some of the key areas that you need to consider before making your selection; take note of them and you will be well on your way towards investing in the right property.

Capital Growth

Of primary concern when assessing the suitability of a property is the potential it has to rise in value. It should not be assumed that all properties will rise equally in line with national or local averages. There are several factors that you should consider when judging the growth potential of a property. Firstly, look at the supply of dwellings in the local area; if it is limited and there is a strong demand for properties, your investment is likely to do well. Knowledge of government infrastrucutre plans (roads, schools, major developments) which may have a positive or negative impact on future property prices is essential information. These capital growth X-Factors are very significant and should never be overlooked . Also, make sure that you know property prices in the area. Overpaying in the first place will seriously harm the return on your investment.

Rental yield

Long term capital growth is only half the battle though. A property investment should return a good rental yield too. Before committing to purchase a property, make sure you understand all the expenses that will come with owning and leasing it. Managing agent expenses, council and water rates, strata fees, and maintenance are a few of the demands on your gross rental income. Make sure you take them into account when doing your rental yield calculations.

Vacancy periods

Many investors are not aware that a healthy vacancy rate for any market is described by market experts as 3% – this equates to only one and a half weeks vacancy each year meaning that the property is tenanted 97% of the time. Currently all major Australian cities have a vacancy rate of less than 3% and many under 2%. It is very important that you know the vacancy rate for any area or suburb you are looking to invest in to make sure it is under this 3% threshold.

Amenities

Areas with plenty of local amenities such as shops, schools and public transport will always be popular. Lifestyle attributes such as restaurants and cafes, while not as fundamental, will also have an impact on the desirability of the area. And if the area is not right, it doesn’t matter how perfect your property is. Nobody will want to rent it.

Population

Choosing a property investment in an area with a stable or growing population will give you a huge advantage. Investment properties in regional towns or suburbs dominated by single employers/industries can be lucrative, with a constant supply of tenants looking for accommodation, but there is always the chance that that one employer will move elsewhere, causing the population to shrink rapidly. It is usually better to choose a property in an area with a steady population and a varied employment base. Remember, anchoring your investment to a single industry or business creates a much higher risk factor. For low risk and consistently high long term performance, astute investors target major metropolitan cities in which to build their property portfolio from.