When investing in property, there are plenty of options available. But what makes a property a good investment?
Whether you’re looking in the city or a regional coastal town, the core factors that make for a good investment property stay the same.
We’ve put together a list of our top five tips when working out whether the property you’re looking at will be a good investment.
Is the cash flowing?
One of the most important things to know when deciding if a property will be a good investment is how much you are going to need to dip into your pocket to cover expenses. Whether you have a positively or negatively geared property is really your choice, but you will need to work out how much cashflow the property produces and how much of your own money you will need to put towards expenses like rates, water, insurance, strata fees and mortgage repayments.
It is always best to know what you want to achieve from your investment, to determine if it’s a good pick. You might want it to generate some extra “income”, to cover its expenses or to simply be used for capital gains.
A little research into what’s happening in the area you’re looking at will never go astray. Is the market slowing down, is it steaming ahead, or have you already missed the boat? Understanding what the average vacancy rate is and whether there is an oversupply or an undersupply of properties may all influence your purchasing decision. Economic factors such as employment increases and decreases, and what sector those jobs are in is important. You certainly don’t want to be buying a property in a mining area when the mine is due to close in two years.
Another aspect to consider is what types of properties are in high demand. Do people want two and three bedroom units or are they looking for family sized houses of four or more bedrooms? These factors should all be considered when thinking about whether a property will be a good investment.
Market value or bargain hunting
When it comes to buying an investment property you want to be getting the best for your money, but should you solely be hunting for a bargain, or should you aim to pay market value or just under? Often the answer will lay in what your budget is and how much you will need to spend to get the property up to a rentable standard.
For many investors, buying at a discount is the aim. This generally means you won’t need to go and spend a lot of extra money to bring it to a rentable standard and you may end up with some extra funds if you hit a rough patch of maintenance and vacancy.
Some investors consider buying at a bargain price the way to go, but what this is will depend on your version of a bargain. For some, its buying a great property in a good area at a good price.
On the other hand, it could also mean you end up buying a property that needs a lot of work – if it seems cheap for the area, it’s well worth looking a bit further into it to see what’s really going on.
Does it need improvement?
This almost goes hand in hand with the point above. If you need to spend a large amount of money on improving the property and making it attractive to tenants, will it be worth it in terms of a higher rent amount or better capital gains? Small improvements such as paintwork, gardening, upgrading cabinet facings and replacing old carpet don’t need to cost a lot, but can help push the overall rent and value of the property up.
However, think about the improvements you’d like to carry out and work out the best time to do them, in line with your investment strategy. It’s best to have a chat to your accountant to ensure you are getting the maximum tax benefits out of upgrading your property.
Location, location, location
The location of the property you’re thinking of buying will certainly have some impact as to whether it makes a great investment opportunity. Having a property close to amenities such as shopping centres, medical and educational facilities is a must for many tenants, as is a property close to public transport or within an easy walk of a public transport route.
When you’re deciding between properties within the same suburb or even similar properties in different suburbs it is wise to take in the potential lifestyle and requirements of residents in the area, much the same as you would when searching for a property for yourself.
As with purchasing any property, the best advice is to work out what you want to achieve from your investment and to research potential options around those goals. Many properties can be great investments, but they do require a little work and a lot of patience.