Buying an investment property will require a good deal of research and investigation, but the transaction is likely to be much less emotional that purchasing your own home.
As well as buying in a good, safe neighbourhood, as an investor, you will want to ensure your purchase is in an area with strong rental demand, good rental yields and hopefully future price growth to make it a worthwhile money-making venture.
Here’s some things to consider if you’re weighing up a foray into property as an investor.
Location
The old adage ‘location, location, location’ is on point when it comes to any property purchase, but particularly so for future rentals. Try to buy in an area where there is high rental demand. And if you want to extend your pool of prospective tenants even further, consider buying in a neighbourhood that heralds good amenity and lifestyle options. Think about the proximity to schools and child care centres, public transport and local services such as shops, recreation and gymnasiums. General walkability can also be a drawcard. Is it close to major employers, an industrial precinct or a big infrastructure projects? These might impact demand for rentals or future growth of the area and make your purchase a more profitable investment over time.
Age of the property
The age of a property can be a deal-breaker when it comes to buying an investment, so it’s important to consider how old the home is and whether you might need to stump up for hefty maintenance expenses. Depending on how well it has been maintained, older properties might need more upkeep so thoroughly examine all fittings and fixtures to determine when they might need replacement; and commission professional building and pest inspections before sealing the deal. Most investors also choose to have an expert draw up a depreciation schedule which steps out the depreciation, or natural wear and tear, of a property over time. Investors can claim depreciation as a tax deduction.
Property features
Most tenants will have a wish list when it comes to rental properties that meet their needs, so think ahead before making your investment purchase as to what might be attractive features for your rental. You may not be planning to live in the property but someone will so it’s important to pick a property that will appeal to renters. For example, a second bathroom, home office, lock-up garage or shed storage space and heating/cooling might make it more alluring for tenants. Also consider how your property might work for different sectors of the market. For example, retirees might not entertain a third floor apartment without lift access, while young families may be dissuaded by a property without a backyard.
Extra costs
Before you buy an investment, it’s a good idea to crunch the numbers so any additional expenses don’t catch you by surprise. Check out how much the council rates are for the property, if there are strata fees and proposed property management costs against what you’re likely to earn in rental income. Predicted increases in interest rates and likely maintenance costs may also be a consideration when drawing up a budget.