There are several factors you need to consider when weighing up whether or not the property you’re looking at will be a great investment.
The factors you need to consider may vary depending on your location and the type of property you buy, but there are a few standard factors that will apply to all investment property buyers.
The location of your investment property is a major factor that can influence purchase price, rental price and sale price.
But location doesn’t just affect the price. How close the property is to amenities may affect the number and type of tenants available to you and it may affect insurance prices for both yourself and your tenant.
Looking for an investment property close to amenities, public transport, educational facilities and lifestyle facilities can help increase the rental price, which may help cover a higher initial purchase price.
Price is a major investment consideration – the initial purchase price, potential sale price and your rental income.
When purchasing it is important to know what is happening in the market – making rash decisions could see you paying higher than required.
By spending a little time doing some research, you’ll have a good idea of other purchase prices in the area, potential weekly rental prices, and when it comes time to sell, you’ll have an idea of what your neighbours have sold for.
When considering the weekly rental price, it is a good idea to be guided by your rental agent. While you may have an idea of what you would like to achieve, you may be aiming too high or too low.
A good rental agent will be able to give you examples of what similar properties in the area are renting for. They should also be able to give you a suggestion of rental increases when a tenant’s current lease is due to end.
As part of your research, you will need to consider costs such as council rates, water rates, insurance, strata fees, maintenance and more.
This is when you need to decide whether you are after a positively geared or a negatively geared property, and whether you can afford to pay those on-going costs if the property is empty in between tenants.
Much like when purchasing a home to live in, the features of the property are important to consider when purchasing an investment property.
While the fixtures, fittings and appliances don’t need to be top of the range, the property needs to be functional and include the features that are important to renters.
These include functional kitchen and laundry areas, a separate toilet and bathroom, outdoor living/garden areas and a place that’s easy to clean or maintain.
You will need to also ensure that the property is suitable and has attractive features for the types of tenants you are looking to target.
Vacancy rates and rentability
Ongoing vacancy rates are an area you will need to keep an eye on when owning an investment property.
Although your property agent will be able to give you a good idea of what’s happening in the area local to your property, understanding and knowing the trends of the area is always helpful.
Buying in an area with consistently low vacancy rates will ensure a steady stream of tenants, while buying in an area with consistently high, or varying, vacancy rates may mean you end up with long gaps between tenants.
Maintenance is an area many investment property owners don’t take into consideration.
Everything from basic maintenance such as leaking taps or broken power points through to major issues like broken air conditioners or a burst hot water cylinder, which can occur at a time when other bills are due, or you’re in between tenants.
When looking at investment properties to purchase, it’s always worth keeping a mental check on any potential maintenance issues.
Factoring in regular maintenance, as well as unexpected replacements, is an important part of planning when purchasing an investment property.
Buying an investment property is a big decision and the best way to work out the impacts of any property you are intending to buy is to speak to local agents and look at similar properties on the market.
This will give you a good idea of whether your investment will be a wise decision or a drain on your finances.