How To Choose The Right Investment Property
Here are our 5 tips to help you select the right property
You may have heard from investment circles that property is better than shares and other assets. For one, property is less volatile than the share market, secondly, it’s one of the most high-yielding types of investment and lastly, it’s the easiest to understand compared to other assets.
However, choosing the right investment property is still important, as choosing the wrong one can drain your wallet rather than be a tool to build your wealth.
Here, we outline 5 steps to help you get started on choosing the right investment property.
Disclaimer: The information in this blog is for educational purposes only. We always recommend seeking professional advice before deciding to invest.
1. Have a clear budget
Knowing your budget is foundational as it will give you a clear picture of your financial situation before you make a huge commitment. You don’t want to overcommit to a property and end up making a loss!
Set up a budget that details the purchase price, ongoing maintenance costs, and potential rental income. Expenses can include property management fees, insurance, council rates, pest control, and other maintenance costs.
Knowing what you can afford can also narrow the types of properties you can buy—whether a house, apartment, or townhouse. Each has pros and cons and attracts a different type of tenant(s), factors that can affect the success of your investment.
2. Location is key
You have heard the famous phrase property professionals like to tout: location, location, location! That’s because locations with desirable amenities that people want and need, well-developed infrastructure, and future economic growth potential will always attract potential tenants.
Research the location you have in mind and look at past performance, such as vacancy rates and rental price trends. These will indicate how in-demand a suburb is for potential tenants. Vacancy rates refer to the percentage of unoccupied rental properties in a location. A low vacancy rate suggests a high demand for property in that area, which means you can secure a tenant more easily.
Real estate websites such as realestate.com.au and Domain have suburb guides that are a great place to start on your research.
3. Analyse the rental yield
You will need to analyse rental yield to maximise your return on investment. To calculate rental yield, subtract the overall expenses from the annual rental income and divide the result by the property’s value. Multiply the outcome by 100 to get a percentage.
Net Rental Yield = [ (Annual rental income – Annual expenses) / Property value] x 100
A rental yield between 4-5% is generally considered “good”.
4. Conduct a thorough inspection
The property's condition can affect your overhead costs and, in turn, the success of your investment. Renovation and maintenance costs can eat into your profits, so always pay for professional and detailed reports before buying. Inspections include building reports, pest inspections, and strata reports.
Building inspections assess a property's structural condition, pest inspections check for infestations, such as termites, that can damage a property, and strata reports are for units and apartments and check for any issues with the strata scheme and common areas.
Remember to inspect the property to get a feel for the area. You can also speak to neighbours and ask for their experiences in the area, as current residents will give you valuable insights about the type of tenants your property may attract.
5. Legal and tax implications
Understanding the legal requirements and tax implications of owning investment property is crucial to avoiding costly mistakes, protecting your investment, and avoiding costly disputes. It is also essential to know what tax benefits you are entitled to.
We recommend doing plenty of research and getting the right team of professionals around you, such as a lawyer, property expert and tax adviser. As the saying goes, “teamwork makes the dream work!”
Having the right people and the right advice will ensure your investment property venture is a long-term success.
Conclusion
Choosing the right investment property combines research, strategy, and experience. It is essential to select a property tailored to your personal goals, both long-term and short-term.
If you can get the guidance of a professional who knows the market well, you can increase your likelihood of selecting a successful investment property. At RPN Global Sales, we know the local market well, and our team of property professionals can help you with your property goals. Ask us how.
Want to read more about property investing? Click on the links below…
5 things you need to know before buying an investment property
Why you should invest in regional properties through SMSF
7 Reasons why you need a property manager
