An Introduction to Property Investing - Part 2
In Part 2 of our 3-part series “An Introduction To Property Investing”, we consider the further important topics of where to buy, what type of property to buy, new versus established and what features to look for.
Where To Buy
Most people know the answer to that age old question; what are the 3 most important attributes to look for when buying a property? Location, Location, Location!
The above answer still holds true today and is equally important for investors as for those buying a home to live in. As a property investor, always put yourself in the shoes of a prospective tenant and consider what they will be looking for in a rental property. Most want proximity and convenient access to public transport, schools and other lifestyle amenities such as shops and restaurants. These factors will make the property most appealing to tenants which in turn leads to greater tenant demand. The higher the demand from tenants for a particular property, the greater the rent you, as the landlord, can achieve.
In more general terms, the safety of an area and its overall “feel” are both important when assessing likely future capital growth potential. For example, if there is to be an expected development that will bring more shops and restaurants or there is a proposed large infrastructure project that will result in additional local jobs, these are things likely to increase the attractiveness of the property’s location. In doing so, this will most probably result in a significant increase in future capital growth.
Property Type
While the decision on whether to invest in a house or a unit will to a large extent be determined by budget, investors should still think about the type of property they want in the context of its location.
What we mean by this is a house with a garden will probably be more appealing to tenants in a family-friendly suburb, rather than a compact modern unit. Similarly, a modern unit may be in greater rental demand in areas close to universities or hospitals, where there’s usually a high volume of students and medical professionals looking to rent. This is why it’s really important to understand the demographics of the area you’re thinking about for investment.
Houses are generally more expensive to buy and insure, and can require more maintenance, but equally, they can usually 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 body corporate fees to factor in. And with body corporate fees you should keep in mind that they rarely decrease over the years and almost always increase.
Age of Property
This is an important factor that can impact the cost equation. We say this because while a premium may need to be paid for a new, or almost new, property, this needs to be balanced with an older comparable investment property having a lower purchase price but more ongoing maintenance costs.
There is no “one size fits all” when it comes to deciding whether an investor is going to be better buying a new rather than established property. But whichever route is taken, be sure to check everything, from the structure to fittings and fixtures. It’s always recommended to have professional building and pest inspections carried out before the purchase goes unconditional.
The extent of required renovations are another consideration for investors when deciding whether to purchase a particular property. Carrying out selected minor renovations may help increase rental yield and which can be factored into the operating budget. But if a property needs major renovations from the outset to achieve an acceptable rental return, then the purchase might not be a profitable investment.
Another factor that’s going to be relevant to an investor’s choice of property is the extent to which depreciation is considered a priority. Depreciation on investment properties is a calculation of how much the value of the property and its contents (including white goods, carpet etc.) will decrease over time, based on which tax deductions may be claimable. Generally, the newer the property, the greater the depreciation that can be claimed. We are able to recommend suitable companies that calculate and prepare depreciation schedules for investors.
Property Features
While you may not be planning to live in your investment property, from the moment you first view it, you need to be thinking about the things tenants look for. Features such as a secure garage, additional bathrooms, or a home office space will go a long way to increasing the property’s rental return. The layout and design of the property will also make a difference to your rent so consider if it is designed with practical everyday living in mind and has plenty of natural light. Many tenants look for these sorts of things so you need to do so too before buying.
Conclusion
As you start your investment journey, please keep in mind that the factors brought to your attention in this article are interconnected with each other (for instance, the location and age of the property will have an influence on likely long term capital gains). The reason for mentioning this interconnectivity is that if you want to identify the best possible investment properties, you need to be thinking about all these factors right from the outset of that journey.
It will be apparent from what we have said that there is a lot consider before deciding on a particular investment location. And once the location has been selected, the task of identifying the best possible investment property begins. Providing you do your research, your chosen investment property will financially reward you over the medium to long term.
We hope that Part 2 of this series on property investment has been helpful and of interest. In Part 3 we will look at important factors that are relevant to an investor’s decision to sell.
If you should have any questions about this article or you would like a confidential discussion about how we can help you identify a suitable investment property or assist you with the sale of a property (whether or not it is an investment property), please contact Peter Turner.