How to choose an investment property

May 07, 2015
Melinda Halloran

When you want to build a nest egg for the future, property can be one of the soundest investment options. But deciding you are financially ready to invest is just the first step. Then you need to decide what property to purchase – do you buy off the plan, pick up a renovator or opt for a high yielding inner-city apartment?

With so many options available, it’s important that you make a plan before purchasing. Before buying an investment property, consider the following:

1. Pre-approval

Before you start looking for properties, you should know exactly how much you are able to borrow. If the investment property requires you to take out a second mortgage, you should have your other debts such as your home loan and credit cards at manageable levels beforehand.

2. Rent or renovate

Do you want to renovate and sell to make a quick profit or would you rather hang on to the property to take advantage of rental return? In a slow market, renovating may not be in your best interests, but if you are able to do some of the work yourself, you put yourself in a position to make a greater profit.

Whether you choose to rent or renovate will affect the type of property you decide to purchase.

3. Property type

When deciding which type of property is best for you, consider the advantages and disadvantages of each, whether the property is attractive to a wide range of tenants and the rental return it is expected to yield.

Houses: The advantage of houses is that they come with land, and this can lead to greater growth in property value. A disadvantage of buying houses is that they can be more costly to maintain.

Apartments: While apartments can be cheaper to purchase and require less maintenance than houses, they have body corporate fees and the constraints of communal living.

Off the plan: When purchasing a property off the plan, you won’t be able to inspect it before signing the contract, so you’ll need to be sure you are working with a credible developer. New properties can attract higher rental incomes, they require less maintenance and appliances are often still covered by manufacturers’ warranty.

Existing dwellings: As opposed to off the plan properties, existing dwellings have the potential to be renovated, which is a great way to add value. You can inspect exactly what you will be purchasing, but there may be significant wear and tear on the property that will need tending to.

4. Location

Location is one of the primary considerations of purchasing property. Research areas you are interested in to assess growth potential, local amenities such as public transport and shops, and proximity to the city or other major hubs. You should also look at rental demand in the area and whether there are any new developments planned.

The type of property you purchase will also depend upon the location you choose and what tenants in that area are looking for. For example, if you are purchasing near a school, you might consider buying a house, which will appeal to families.

5. Choose with your head, not your heart

Your own personal preferences may be different to those of a prospective tenant, which is why you should not choose a property based on your own tastes. When looking for a property that will appeal to the greatest number of tenants, consider things such as how much storage it has, car parking and how much maintenance is required.

6. Create a budget

When you have a property that you would like to purchase, create an annual budget that includes anticipated rental income as well as ongoing expenses such as rates, body corporate fees and property maintenance.

7. Organise pest and building inspections

If all the numbers stack up in your favour, it’s time to organise all the necessary pest and building inspections. Don’t skimp on these just to save on the cost of the inspections, especially if you are purchasing an older property. A second mortgage usually stretches your finances to their limits and it is unlikely you’ll be able to afford costly repairs that could have been identified in a pest and building inspection.

Choosing an investment property is a major financial commitment. If you are unsure whether it’s the right decision for you, I can chat to you about your options and help you to find an appropriate loan.
 

Luke Cashin
0419 733 862
luke.cashin@mortgagechoice.com.au  

Posted in: Property investment

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