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Whether you’re looking at purchasing a unit, a townhouse or a stand-alone residence, there are some fundamental factors you need to consider before launching your investment strategy. This includes looking at your financial situation, the current market conditions, and the potential return on investment. Many investors look at a second property purchase as a way to secure a raft of tax benefits, but putting in the time to develop a strategy and research your investment property thoroughly can provide longer-term benefits such as income and capital growth. Here are four factors you need to consider before making your first investment property purchase.
Factor #1: STRATEGISE
Your Financial Goals
A property investment is generally considered to be a long-term investment, so it pays to have a plan in place that considers your investment time frame before you jump the gun. The goal for many property investors is financially motivated, so you want to start thinking about things like your budget and the potential return on investment early on in your journey to ensure that you’re making a smart investment.
No doubt you will be looking for a property that provides significant financial benefits in the form of rental returns, low vacancy rates and positive capital growth opportunities for future years. It’s best to involve your mortgage broker, accountant and/or financial planner early on in your plans, so you can analyse which property investment aligns with your circumstances and your financial goals.
The Value of Research
When it comes to purchasing an investment property, doing your research is essential. After all, this is likely going to be one of the biggest investments you’ll ever make. By taking the time to learn about the market conditions and the potential return on investment for different types of properties, you can make an informed decision about which property is right for you.
It’s important to arm yourself with as much real-time, accurate data about the housing market you’re looking to purchase in. Finding reliable sources of data, from organisations such as Core Logic, is a great first step for your research. You will want to combine your own research with actionable knowledge. You can do this by speaking with local real estate agents, mortgage brokers or even local community members to build up your bank of information surrounding your potential investment property. Researching thoroughly will not only equip you with the knowledge to find the right property for you but can also give you the confidence you need to negotiate an affordable price for the property.
It’s important to remember that while there may be some short-term risks associated with investing in a particular area if you’re looking at the long-term picture, these risks can be mitigated.
When you’re thinking about purchasing an investment property, you’ll likely want to look at the current market conditions. This includes things like the state of the economy, interest rates and housing market trends. By keeping an eye on these factors, you can get a better idea of whether now is a good time to invest or whether you should wait for a more favourable market. Luckily, Y Home Loans has you covered with our very own Property Insights, a weekly show that gives you all the latest information on the state of Australia’s economy, property market and much more.
Factor #2: Knowing your target market
It’s a critical factor in the financial success of your investment property: does your property appeal to the right tenant?
It’s important to think about who you’re going to be renting your investment property out to. By considering the target market for your investment property, you can tailor the features and amenities of the property to make it more appealing to potential tenants. This could mean adding features to the house; or making sure the property is located in a desirable neighbourhood.
You want to ensure that your purchase aligns with the type of property that your target market would be interested in. For example, if you’re looking to rent to families, then an investment property with multiple bedrooms and a backyard would be more suitable than a one-bedroom unit.
By appealing to a particular market of tenants, you increase the chances of renting out your property, thereby increasing the potential to have a steady stream of rental income. Ask yourself:
– Is the property in good condition?
– Does the house have street appeal?
– Is it a low-maintenance property?
– Is the layout functional and comfortable?
– Does it have a neutral colour scheme?
– Are the appliances clean and in good working order?
– How does it compare to other properties in the area?
– Do the bathroom and kitchen need an update?
By doing your research and knowing your target market, you can make sure you’re investing in a property that will be in high demand.
Factor #3: Location, Location, Location
Purchasing an investment property in the right location is a no-brainer. A property’s location will have a huge impact on its appeal to potential tenants, and can also affect the overall value of the property.
Think about it – would you rather rent a property that’s located in a quiet, residential neighbourhood or one that’s in the middle of the city? The answer will depend on your earlier research.
Here are some questions to keep in mind when considering a property’s location:
– Is it close to public transport and other amenities such as schools, shops or cafes and restaurants?
– What is the surrounding neighbourhood like?
– Is the property in a high-demand area?
– Are there any upcoming government planning or legislation changes that may affect the future value of the property?
– What is the potential for capital growth in the area?
– What is the crime rate like?
By taking these factors into account, you can be sure that you’re investing in a property that will be highly sought-after by tenants.
Factor #4: The property’s history
When in your research stage, analysing the data surrounding the performance of particular properties in specific suburbs will give you an idea of how well the property has performed in terms of capital growth and rental yield. By doing this, you can make an informed decision about whether or not the investment is worth your time, energy and money.
When buying a new home for investment, you may not have sufficient historical performance data about the property or neighbourhood, particularly regarding the area’s capital growth performance.
The advantage of selecting an older home is that you’ll have data to assist you to make an educated decision about the property’s prospects for return on investment. That is not to say there are no benefits to purchasing a new investment property, of course, there are (such as lower maintenance expenses and an attractive depreciation schedule), but you’ll need to make certain assumptions about your rental return on a brand new property.
A helping hand
Purchasing an investment property is not a decision that should be taken lightly. There are many factors to consider before making such a purchase, and doing your research is essential. By taking all of these factors into consideration, you can be sure that you’re making a smart investment.
Yellow Brick Road Mortgage Brokers help people like you move toward their financial goals every day. Remember, involving your mortgage broker as early on in your process as possible will help you determine your budget and can save you wasting time in the long run.
If property investment is on your radar, start a conversation with us today and we can help you along your journey.