How to choose the right investment property
With interest rates at an all-time low, 2015 may be a great year to purchase your first investment property. It’s an exciting prospect and it’s a great way to build wealth for your future. But how do you make sure that your investment will return a profit and leave you better off? Not every property makes a good investment, so here are a few things to ask yourself about a property before you make a purchase.
Is the property the right price?
The first thing you need to consider when purchasing an investment property is your budget. How much you have to spend will help to determine the type of property you can purchase and the most suitable locations to begin your search. Talk to us before you start and we will help you crunch the numbers to determine an appropriate budget. Plus, this will give you more confidence when you’re negotiating on price!
It is also very important that you avoid paying above market value for any property you choose. Before you purchase a property, you should carefully research its value by comparing recent sale prices of similar homes in the area. When performing this exercise, it is important to compare like to like to get an accurate figure and be sure you’re not paying too much.
To be on the safe side, you could also get a valuation from a professional property valuations expert. Ask us about this ahead of time and we can assist you with the appropriate referrals.
Savvy property investors go to great lengths to locate properties they may be able to obtain for less than the market value. Some ways you can do this include:
– Negotiating on properties that have been passed in at auction
– Looking for properties that need a quick sale due to death or divorce
– Attending mortgagee auctions where the bank is controlling the sale
– Finding properties with defects that can be quickly and inexpensively repaired.
Will the property go up in value over time?
Capital growth potential is one of the most important factors when you are considering which investment property to purchase. The more a property goes up in value, the more profit you will make when it comes time to sell. Capital growth potential is determined by a number of different factors including location, future housing supply in that area and demand for the property by potential tenants. So, what do these mean?
Location: it is best to consider properties in a location that will be highly sought after in the future. You may look at suburbs that are close to the CBD, suburbs that are entering a growth or redevelopment phase, or ones that will always be in high demand because of popular schools – again, thorough research is really important here. Locations that will be attractive to potential tenants and home buyers often include features like:
– Proximity to work and industry
– Proximity to schools and universities
– Easy access to public transportation
– Entertainment, shopping and leisure facilities
– Parks, scenery and general atmosphere.
Supply: try to choose a property where there will be a limited supply of this kind of property in the future. For example, if you are looking at purchasing an apartment, how many apartments will be built in the area moving forward? If the type of property you purchase is popular with tenants and in short supply, it is likely to experience good capital growth. However, if there is an excess of similar properties on the market in the area, capital growth potential may be limited and the value of the property may even go down.
Many locations are currently experiencing potential oversupply, particularly where new housing developments, apartments and units are being built. You can research future developments in the location you have chosen with the local council.
Will your investment generate a high enough rental yield?
When choosing an investment property, it is important to consider how much rent it is likely to yield. This is a very important factor, as you will probably need to make sure that the rent will cover, or contribute to, the costs of your mortgage, property management and ongoing maintenance.
To make sure your new investment property will be affordable, you can research the likely rental yield with local real estate agents and property management companies. They will be able to give you a fairly accurate estimate of the rental value of the property by comparing it to similar properties in the area. If you check with a variety of local real estate agents, you can discover how many similar listings there are in the area, how much rent tenants are prepared to pay and the average time that properties remain vacant.
With your first investment property, as with all investment properties, careful research is the key to success. When you locate a property that you feel may be suitable, be sure to take the time to investigate its financial viability before you move to make a purchase. Additionally, if you come and see us ahead of time and obtain pre-approval on your mortgage, you will give yourself additional negotiating power and avoid wasting time on properties that do not fit your budget.
If you are considering making a property investment purchase this year, please let us know. We’ll make a time to get together to go over your finances with you and help you get everything set up and ready to go before you start your search. So why not give us a call today?