Buying an investment property is a very different matter to that of buying your own home. Unlike buying a home, it’s wise to not get emotionally attached and think of it purely as a financial decision. There are certain factors you should consider in your strategy for buying an investment property and it is important to not allow your personal preferences cloud your judgement.
Understand your cash flow
When purchasing an investment property, it’s important to work out your cash flow so you have an understanding of how your new venture will affect your finances. Earning a profit on an investment property isn’t as easy as simply working out the rental yield. There are other costs to take into consideration to decide if the property will gain you positive or negative cash flow.
Consider all the ongoing costs such as property management fees, investment loan interest rates, landlords insurance, and any maintenance costs which you may incur. Once you know this you will have an understanding of the property value you can afford.
Location, location, location
When buying your own home you look at the suburb you’d most aspire to live in. When buying an investment property, it’s not about where you want to live. It’s about looking at locations where properties are on the rise and can give you healthy rental returns. Areas that are expanding, undergoing urban regeneration or close to the CBD are usually good investment locations. Properties close to public transport, schools, shops and hospitals can influence the appeal of property to tenants.
Get to know the market
When choosing an area, it’s essential to research the market you are considering to buy in. Do your research on what the other properties in the area are selling and renting for, this can give you an indication of whether it is a good investment. Speak to locals to find out information on the suburb that a real estate agent might not tell you.
Know your strategy
When looking for a property you need to think about what your investment strategy is so you know what to look for in an investment property. Are you buying to renovate and sell? If so then you may want to look for renovation opportunities in upcoming suburbs. Or, perhaps you want to buy the property as a long-term investment and get a tenant in. In this case, you’d need somewhere with rental demand that would suit a tenant’s needs.
Think like a tenant
If you’re purchasing an investment property to rent out, think about who your tenants may be when looking at properties and consider the demographics of renters in the location you are looking for. If it’s close to schools, you could be letting to families, in which case you would want a property with more than one bedroom and perhaps a yard. If you’re looking in or near the CBD, you could be letting to professionals. In this case a one or two-bedroom apartment may be more desirable. Put yourself in a renter’s mindset when researching the property market.
Inspect the property
When you’ve found what you think is the perfect investment property get a building inspection done to check the quality of the structure before you sign the contracts. A house may look in great condition but you could get a few months down the line and notice issues such as damp in the walls or even a pest infestation. Building or pest issues could end up costing you more money that you hadn’t equated for, so save yourself time and stress and be diligent in examining the property before you purchase.
Speak to a lending expert
When buying an investment property it’s always a sensible idea to speak to a home loan specialist who will offer you guidance on the various loan options available to you and what you might need to apply. Enquire today and have a chat with one of our friendly home loan specialists.