Entering the investment property market
This detailed article discusses 4 key areas that potential investment property owners should review before purchasing. It highlights points that many people may not initially consider.
Purchasing a property for investment purposes can involve a different set of considerations compared to purchasing a home to live in. Here are some tips to get you started.
Which rental market?
First, decide if your property will cater for the budget rental market, mid-level rentals or the executive market. While the “executive” end of the rental market provides very good returns, it may not be suitable for the average investor. The market for high-rent properties is more fickle and hence you could find yourself without a tenant for a considerable period and no cash flow to meet mortgage repayments. At the budget end you are more likely to encounter higher tenant turnover.
What type of tenant?
Consider the type of tenant you intend to target. Are you looking for young couples with no children or will you focus on the family market? Units are good for business couples, while the typical house and garden is more suitable for families.
To minimise tenancy turnover and appeal to the higher calibre tenant, the property should be finished and presented to a standard that is more applicable to an owner-occupier.
A relatively new or recently refurbished property, well decorated, with good quality fixtures and fittings is important to secure the right tenant who will stay for the longer term. Skimp on quality and you may end up paying more on regular maintenance and replacements.
Location, location, location
Once you have determined the type of property, the next step is location. A more attractive rental property will be close to public transport and good road systems. If your rental is family-focused you need to be sure it is close to schools, childcare facilities and sporting amenities.
Consider if there are places of employment in the close vicinity, such as industrial or commercial centres, attracting substantial numbers of employees – and potential tenants. What is the level of rental vacancies in the selected district?
For long-term capital growth seek an area with high trends in population growth. Take time to study which areas are proving popular and where local authorities are developing infrastructure.
Do it yourself or use an agent?
Happy, contented tenants will look after your property, so good property management is essential. If you intend to do this yourself, be sure you are contactable 24/7 in the event of emergencies and have a list of tradespeople you can call for plumbing, electrical or building repairs. If you intend to use a property agent, check their background, experience and current management procedures. And shop around.
Remember, to improve your chances of profit, property should be considered a long-term investment. With this in mind, it is worth putting in the extra legwork before you buy to help make a good investment decision.