Key take-outs
- Consider all factors holistically before committing to an investment property purchase
- Always put yourself in the shoes of a prospective tenant
- Plan the financials carefully and ensure you have the right loan for your needs.
1. The best location location location
It’s a real estate cliché for a good reason and it’s just as valid for investors as renters. Consider the needs of tenants and think about what they’ll be looking for in a rental. Proximity to public transport, schools and other amenities that are part of most people’s lifestyles, such as shops and restaurants, could make the property more appealing.
A neighbourhood’s safety and general vibe are both important factors when figuring out its growth potential. For example, if proposed planning suggests the area is likely to undergo development that’ll bring more shops and cafés, this may increase the attractiveness of the property’s location as well as its value. Likewise, if big infrastructure projects are planned that could mean more local jobs or better public transport, property value could grow.
2. The right type of property
While the decision to invest in a unit rather than a house will be largely determined by your budget, you should think about the type of property in the context of location too.
For example, a house with a backyard will likely be more appealing to tenants in a family-friendly suburb, than a compact apartment. Similarly, a modern apartment may see higher rental demand in areas near universities, where there’s usually a high volume of students looking to rent. It’s important to understand the demographics of the area and choose accordingly.
Houses are generally more expensive to buy and insure, and can require more maintenance, but equally, they can fetch higher rents on average and have higher capital growth. On the flip side, units generally start at a lower price point and require less maintenance, but there can be other costs such as strata fees and the need to hire a property manager to think about.
3. New property versus old
Age is an important factor that can affect the cost equation. Investment properties typically involve ongoing expenses, so you want to avoid buying a property that's a drain on your finances through maintenance costs.
Older properties might need more work, but much depends on the condition they’re in – so be sure to check everything, from the structure to fittings and fixtures. Consider getting professional building and pest inspections done too.
You may be up for the challenge and cost of renovating a property that needs minor fix-ups. But if it needs major renovations, it might not be a profitable investment.
Another way the age of the property will affect your finances is the property’s depreciation schedule. Depreciation is a calculation of how much the value of the property and its contents – including white goods, carpets etc. – will decrease over time, based on what you may be able to claim as tax deductions.
4. Appealing features
Even though you may not be planning to live in a property, someone will be. So, think about the things people usually look for. Certain features such as a garage, a second bathroom, or a home office space may go a long way to increasing the property’s rental value. The layout and design of the property make a difference too. Is it designed with practical everyday living in mind? Does it have natural light? These are all things tenants often look for, so you should too, before you buy.
