What Makes a Good Investment Property?
A carefully selected property is more likely to result in a greater return on investment.
To maximise your investment return there are a few key considerations you need to take into account:
Invest in the right stage of the property cycle
The property market moves in cycles. Property values may rise due to strong market growth, remain steady or even decline during certain phases of the cycle. Thus, as an investor it is important to know where the market is within the cycle to ensure you secure your property at the right price. Timing the market is not the most important part of property investing when you have a long term strategy. However, buying when prices are rising or about to rise can reduce your risk in the early stages of the investment and avoid negative equity issues if you unexpectedly need to sell them property early.
Buy in the right location
Buying in the right location is one of the most important parts of a good property investment. If you purchase a property in the right location, then you are more likely to have a better investment performance. Suitable criteria for a high performing property investment include:
- Proximity to diverse employment opportunities. Commuting to and from work adds to the time to the work day. Being close to a wide range or high paying employers can be an advantage. Conversely to this the super rich business owners may not need proximity to employment and can often prefer lifestyle locations.
- Location demographics. This is often correlated with other factors but the greater proportion of high income people living in the area indicates higher capacity to pay.
- Population growth in that local area. More people coming to an area increases demand on property in that areas.
- Limited opportunity for increases in the number of dwelling. Zoning restrictions can mean that new dwellings can be built either through developing new land or re-developing higher density buildings. Where opportunities for these is limited through local council zoning restrictions this limits housing supply in a supply and demand equation.
- Proximity to good schools. School zones can determine if the residence children are or are not able to attend some schools. In this case even different locations on the same street can make a large difference if they are within or outside the school zone for a top ranked school.
- Proximity to public transportation, close to train and bus stops can be big advantage but being too close can be undesirable due to the increases noise and through fare.
- Proximity to public facilities (post office, libraries, parks, medical centers, etc.), simply for the convenience factor.
- Proximity to shops, markets and lifestyle activities (restaurants, cafes , beaches, etc.)
Therefore, it is important to consider the property’s proximity to when selecting an investment property.
The Right Property
A quality property will be in higher demand and by those with higher capacity to pay in terms of both rent and on resale. The demand from tenants should also mean that there will be less vacancy periods. Purchasing a run down property in a good neighborhood can be a good strategy if you are planning to re-develop it but then you are in the business of property development not just property investment. Investing in a quality property can mean that you will have less issues with repairs and maintenance.
It is also important to purchase a property appropriate for the demographics of your area. For example, if you are buying in an area with an older community, do not purchase a property with a staircase or an inconvenient layout. If the area is dominated by young couples you may have trouble renting out a four or five bedroom house.
The Right Return
Both capital gain and rental yield are important to your overall return on investment. Furthermore, rental returns can assist you to keep up with the mortgage payments whilst you hold the property. Part of getting the right return is also about getting the right mortgage and having it reviewed periodically so that you are not overpaying on interest and fees. If you are an aggressive property investor and want to maximise your ability to acquire additional properties then the structure of your loans and order of lenders used is also important. A good mortgage broker is an essential part of your team when evaluating your mortgage options.
Researching the Market
There are a number of tools available to research the property market. Some online tools that you can use to research the property market include:
These are some of the basic tools that can be used when researching the market.
If you don’t have time to spend the many hours researching a good investment property, let out team do it for you. We have people who undertake the property market research and analysis. Contact us for professional property investment advisory services.