What to consider when buying an investment property
It’s an exciting time buying an investment property – especially if it’s your first one. But to minimise your risk and increase your chances of getting a good return on investment you need to take your time and do your research. Below we outline some of the most important things to consider when buying an investment property.
Investing where you live isn’t necessarily best
Many people like to invest in an area where their either currently or have previously lived. But when buying an investment property it’s important to consider what’s outside your bubble. While it may feel more comfortable investing where you live, it may not yield the best returns. If you happen to live in a rapidly growing area where the market is about to take off, then go for it. However there’s a good chance your best options sit a little bit further down the street, on the other side of town or even interstate.
Understand supply and demand factors
Possibly the most important thing to consider when buying an investment property is that the property market is driven by supply and demand. You don’t want an apartment next door to a block of 220 units, with another 180 units proposed across the road. You need to consider whether an area is economically diverse and proximity to employment. If the local economy is expanding, this creates more jobs and attracts more people, leading to greater demand for property. Grocery shops, gyms, cafes and parks significantly improve rentability, as does proximity to public transport. Depending on the type of property, you may also want to consider what schools are nearby.
Buy the right property for the right area
Units are great, in the right areas. Houses are sound, but only in certain places. A unit in a greenfield development may seem like good value, but it’s unlikely that apartment living so far from the city centre will be attractive to renters. A house in Sydney’s Eastern Suburbs may appear to be a solid purchase, however the yields are terrible and it wouldn’t make a good investment. Each area will have an ideal investment property type, so make sure you buy something suitable.
Don’t sacrifice on quality because it’s a rental
Just because you’re not living in the property, doesn’t mean you should skimp on quality. A tenant is looking to build a home – a place where they’re comfortable, can stay a while, maybe even bring up a family. If you buy a property that is under-sized, poorly built or in an undesirable location just because it’s cheap, you may find it challenging to attract a tenant. Further, when it’s time to sell the property, you may struggle to make a good return.
Research what’s going to happen in the future
Ok, so you can’t predict the future. But property is a long term investment having an understanding of how an area is likely to change is key to making a sound decision. What is the level of planned supply in the area? How is the employment market likely to change? What roading, transport and infrastructure developments are being planned? Understanding what drives (and kills) a property market will help you eliminate some of the negatives and chase the opportunities.