- Investment Property Guide Tip #1 – Observe Current Market Conditions
- Investment Property Guide Tip #2 – Explore Capital Growth Potential
- Investment Property Guide Tip #3 – Understand Rental Returns
- Investment Property Guide Tip #4 – Keeping Maintenance Costs Low
- Investment Property Guide Tip #5 – Ways to Add Value
- Investment Property Guide Tip #6 – Picking the Right Suburb
- Investment Property Guide Tip #7 – Renovation Potential
- Investment Property Guide Tip #8 – Structural Integrity
- Investment Property Guide Tip #9 – Aesthetic and Architectural Features
- Investment Property Guide Tip #10 – What To Avoid
Buying the right investment property is an excellent way to make your money work for you and to build greater wealth. However, to buy the right property that fulfils your needs, you need a strategic plan, which puts most, if not all, of our investment property guide top tips into action. Let’s look at these now.
To find the right investment property it’s important that you observe the housing market. Typically, the market moves in four phases known as value, growth, peak, and correction. Here’s the deal:
- Value phase – Home prices appear to be stagnant with little growth. This stage leads many people to believe that it’s a good time to buy.
- Growth cycle – Property prices begin rising slowly as market interest increases. Then these costs escalate due to demand.
- Peak phase – The market reaches the height of its growth. Usually, prices have increased quickly – by 20% or more year-on-year – but the cycle cannot improve
- Correction cycle – Property prices moderate. Many people believe this is when the market crashes. But, a correction is just a time where prices stagnate, after extreme price rises.
Overall, these phases last between 7 to 10-years. On average, a full cycle will usually see the price of a property increase significantly.
What’s the bottom line? Ideally, you want to buy a property in the correction or value phase as these often represent the best-valued buys. But, it’s important to remember that the property market consists of sub-markets – state markets, regional markets and also suburb markets – within a national market. All these markets can follow varying trends, so you need to be aware of the smaller markets phases, rather than just focusing on the national market.
The capital growth of property occurs when the value of the property increases over the time of ownership. Buying a property that will significantly rise in value takes a keen eye and excellent market research.
So, how do you achieve this? Well, it’s important to look at the location of the property. Firstly, take note of the development occurring around the property. Ask yourself are there new estates under construction, along with infrastructure? Is the local council continually making improvements?
Next, review the suburbs economic growth. Look at the number of businesses and employers in the region, are there many of these and are they sizeable? Also, pay attention to the shops – are most of these leased? Economic growth creates jobs, and this, in turn, attracts more people to an area. More people means that the demand for housing increases and this pushes up home prices creating strong capital growth.
Lastly, make sure your investment property is near public transport and amenities such as shopping centres and schools. These aspects ensure that your property appeals to as many people as possible – singles, couples, families and retirees.
Many property investors focus on property that gives them a high rental yield instead of a high capital gain. You can also choose to do the same. If you’re aiming for a high yield, then you need to seek out a higher rate of return in comparison to the cost of the property. Typically, the rental yield is a gross or net figure expressed as a percentage.
The gross rental yield is the total income collected from the property annually, divided by the property’s purchase price. Whereas the net return takes costs such as rates, insurance, and corporate body fees into consideration. As a result, the net yield is more accurate as an estimation of return.
If you’re looking for high rental yield properties for investment, then search for lower priced property in areas that attract high rents. If you’re not sure where to find these, then visit a real estate site online and search through the ‘rent’, ‘invest’ and ‘sold’ sections to get a feel for areas. Alternatively, contact your mortgage broker, as they should be able to assist you. This information is a guide only and is an estimate only based on the past 12 months of aggregated online mortgage enquiries from eChoice and partner programs. Submitting your enquiry An eChoice home loan expert will be in touch soon.
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This information is a guide only and is an estimate only based on the past 12 months of aggregated online mortgage enquiries from eChoice and partner programs.
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When it comes to investing you want to spend as little as possible on your investment. Therefore, searching for a property that requires lower-maintenance is ideal. Units, apartments, and townhouses are often on a smaller footprint with compact yards, making them perfect for a rental property. But, you may also have to pay body corporate fees to maintain the grounds. Homes, on the other hand, can fetch higher rental yields and capital gains, but it pays to look for the near-new property as they cost less to maintain than older homes.
When buying any investment property, it’s essential that you set aside an emergency fund for repairs. The most significant considerations are the hot water service, plumbing and leaking roofs. All these items can be costly to repair, but if you have money set aside then these costs won’t set you back.
When buying an investment property look at ways to improve the property. Adding value to a home may be as simple as putting in a garden, alfresco dining area or even adding a carport. These improvements can add a lot in terms of capital value and enable you to ask for more in rent.
Location is always ‘a must’ when buying a property. The right suburb is one that tenants gravitate to because it’s situated close to amenities making life more comfortable.
To find the right suburb look at sales data, visit sites such as Realestate.com.au, Domain and CoreLogic RPData’s Property Value. Then use each site’s research capabilities. You can also look through local newspapers and visit local realtors to get a better understanding of individual areas.
Just remember popular and in-demand suburbs often fetch higher prices. So, if you’re looking to save yourself more, then look at neighbouring suburbs situated next to those that are popular. This strategy will reduce your costs and help to increase your capital gain later.
Also look outside of suburbs that you know. Often when we buy a property we gravitate towards ones with sentimental value such as the childhood family home. This method can be restrictive. So, don’t be afraid to explore suburbs that are further out or even in different areas of the city, you can also examine interstate suburbs.
When looking to purchase an investment property it’s important to consider the potential of the property in terms of renovation. So, ask yourself can you make improvements to the property that will increase its value. It gets better: search for a dwelling that you can rent in its current condition, and later renovate to increase its value and rental return.
Build quality and structural strength are necessary. Ask the following questions before buying:
- Are the foundations sturdy?
- Are quality construction materials used?
- When was the property built?
- Can you repair the property?
- Is the property pest-free?
But here’s the kicker: cracks should raise red flags, along with evidence of termite activity. So, make sure you look at a property thoroughly before buying. If you think you require expert opinion, then hire a professional to conduct a building and pest inspection. These inspections will reveal pests through to asbestos and could save you time, money, and stress.
First impression count, so make sure your property has street appeal. Also, look to bring out a property’s personality. Think layout, outlook, unique features and natural light, then develop a feel for the home. Why? Well, when a property looks inviting and has strong architectural features that are consistent, then it’s more attractive to tenants. The floorplan is another consideration. Property that flows from one room to another will be snapped-up over a property that has not be well thought-out.
There are three aspects of property buying that an investor will want to avoid at all costs. These are as follows:
- Purchasing risky property – There are some properties that a lender will consider as risky. These include student accommodation, off-the-plan developments, serviced apartments, and properties found in mixed zoning areas. If you’re looking to buy this type of property, then your lender may refuse a loan application for a particular dwelling or they may restrict the loan-to-value-ratio.
- Overlooking potential capital growth – Many investors look just at rental returns when buying a property and tax benefits, rather than focusing on capital gains. Yet, capital growth is where property offers the most significant financial benefits. Thus, it’s crucial to conduct in-depth market research.
- Not budgeting for all costs – When it comes to buying an investment property there are many other expenses beyond the cost of the property. There is ongoing maintenance, property repairs and if you’re using a manager, then property management costs. All these need to be factored into your buying plan. Thus, it’s essential that you have a buffer in place or a contingency so that you can cover the costs of your property, especially in those times when it’s not tenanted. A general rule of thumb is to have at least 12-months’ worth of mortgage payments kept in an account just for your investment. This tactic also alleviates any financial stress.
If you take all these factors and tips into consideration when buying an investment property, then it will be an enjoyable experience. Also, if you carefully evaluate before buying, then you should benefit financially from your purchase in coming years.