An investment property can be a shrewd way to build wealth.
Rent can help to pay off the mortgage, and there are potential capital gains to be had when the property is sold.
But it is a very different scenario to buying a home to live in. Typically, the emotions are strongly involved when choosing a home.
Rather than following the heart, the decision to invest in property should be ruled by the head.
The starting point is your budget – and this will determine whether you can afford a house or a unit.
Financial Considerations
There are three major factors to consider:
- Capital growth
You want your investment property to increase in value, so it’s wise to do some groundwork. Thankfully, these days it’s easy to do this online.
It makes sense to investigate the suburb you are interested in:
- What is the median sale price?
- Have prices risen over the past few years?
- What is the median rental income?
Also, look into past sales figures.
- Rental demand
Strong rental demand equals a stable income stream, so you want to buy in an area that is popular with renters. Look into the demographics of an area as well.
- Rental Yield
Rental yield measures the ongoing return on investment for a property. It’s the income generated from a property expressed as a percentage of the property’s value.
The higher the rental yield, the better the return on the investment. For more information about calculating rental yield, click here.
Property Considerations
- Location
Location is the one thing you can’t change about a property, so it’s really important to choose a location with care.
Think about things like:
- What is the general feel of the area or suburb? It is attractive and safe?
- Are there good schools, shops, and restaurants close by?
- What about public transport links?
Check with the local council about planned developments in the area, and research if there are any infrastructure projects happening nearby.
If so, these will drive prices up, meaning higher rental income and more capital growth.
- Type of property
Units or townhouses near the inner city will always be in demand; however, if your budget doesn’t stretch that far, look at areas close to universities and popular amenities.
For houses, those located in family-friendly suburbs near schools and parks will be highly sought after.
- Condition of the property
New and renovated properties need less maintenance than older ones, meaning lower repair costs and hassles.
All properties should have a professional building and pest inspection before purchase.
- Property Features
Properties with plenty of storage and natural light will always be in demand. If the property has extras like a garage or second bathroom, even better. These increase both the appeal and the rent.
Becoming a property investor can be a proven way of achieving wealth, as long as you make your decision with your head rather than your heart.
