There’s a lot to consider when looking for the right investment. Below are just a few starting points you may want to consider when beginning the search for an investment property.
The property itself
Choosing the right property is one piece of the investment puzzle. Different property types attract different renters who can afford different rates, so you need to be matching the property with the tenant from the start. For example, two bedroom properties are often popular places to start, as they may be less expensive to purchase than a bigger property, and often appeal to couples, young families and flat-sharing friends. These types of properties are often in high-demand.
The location of the property can be the difference between a consistent high demand and remaining on the rental market for months. Do careful research and analyse property data to be sure you’re choosing the right location. If talking to residents, try to speak to renters as they do not have an invested interest in the area.
Have a walk around and assess what there is for renters in the area you’re considering. Amenities such as stores, parks, and facilities, along with jobs, crime rates, and good schools, all go towards making the area an attractive place to live. Also check the amount of listings in the area at any one time, this could warn you about a low demand, or inform you there are tenants just waiting to snap up rental properties. Vacancy rates are also a good way to see if a location is attracting tenants. Low vacancy rates mean competition is high and good rental rates can likely be achieved.
If a property has beautiful city views or looks out onto a picturesque setting, make sure it’s going to stay this way. Local authorities should be able to provide you with zoning regulation in addition to any approved building permits. Consider also that more buildings popping up isn’t necessarily a bad thing as development in an area suggests demand is high, though it may also mean that supply could outstrip demand in the future.
Knowing the Australian market and your locality is essential to a good investment. You need to know if property prices are rising nationally, and if a locality is on the up, stagnating, or experiencing decline.
Depth of the market
A good way to assess property trends is to look at the depth of the market. See how many properties sell in each potential area, and for your price bracket. Sticking to cities and areas of long term financial activity is a surer way to always have a tenant base to choose from as it’s likely that there will always be a market for property.
Generate good returns
There are two types of return generated from a rental property, capital gains and rental return. Which is more important to you will depend on your long term goals as a property investor.
If you sell a property for more than you bought it for you have made a capital gain. For properties held for a long time, gains made can be substantial, for shorter term investments gains may come from renovations and remodeling.
When purchasing a property in the hope of making a capital gain it’s wise to consider the owner-occupier market, even if your only intention is to rent. There are often two to three times the amount of owner-occupiers searching for property than investors, so if your property appeals to both you’re likely to create competition and achieve a higher price.
The rental return is calculated based on the property value and the annual payment amount gained from the tenant, represented as a percentage. Figures do not take into account your management fees, maintenance, home loan, local authority rates and other costs associated with offering a property on the rental market. Higher rental yields are attractive to those who are only able to turn a profit with a relatively high rent. Units often offer higher rental yields than houses, whereas houses commonly appreciate in value faster.
All investment types come with a certain degree of risk, the trick is to work out how much risk you can afford. Taking a careful look over your finances should inform the property you purchase and type of yield you are looking for. There’s a lot to think about, but once you establish exactly what you can afford when all costs and expenses are accounted for the picture should become much clearer.