Looking for a great investment property is not an easy task, especially when you don’t really know what you’re looking for. It’s vital to understand which factors should be considered that make an investment property a great decision.
If you want to purchase an investment property that will be effective in creating wealth for you, there are a number of things to consider. Some are essential, some less so — some you really can’t afford to ignore.
Let’s look at eight considerations that are a must when it comes to buying an investment property
- Know your goals – If you are to take only one thing from this article, it should be to “Agree upon, Set and Stick to your goals”. Generally, people who invest in property are looking for four main factors. These are:
– Growing Wealth through Equity
– Saving for retirement
– Increasing their income from rental yield, and
– Minimising their taxable income through Depreciation & Tax Credits
It is imperative that you know WHY and HOW this investment is going to benefit you in the long term. Providence always takes the time to establish your goals and circumstances before presenting properties that match your criteria.
- Capital Growth Rate – If you are looking to build your wealth via equity with the goal of either creating a property portfolio or paying off your home loan faster, you are going to need to know the 10 and 20-year capital growth averages of the suburb you are looking at investing in. This data will give you a conservative and accurate understanding of what to expect the property’s value to increase by in the years to come.
Take note that for the best chance of achieving your financial goals, you should do the figures to ascertain when you will be able to afford to purchase your next property, and how many properties you need to strive to own.
- Rental Income – Most Australians use their property’s rental income to service their investment loan. You should always obtain multiple rental appraisals from local agents to minimise surprises and use the average of all three to create your budget.
- Use a professional property manager – Poor handling of your property and its tenants could seriously hinder your wealth creation journey. Engage and pay for a professional who will take care of all aspects of your property’s management. Remember, the rental management fee is tax deductible, so choose a rental manager who minimise any potential stress and maximise your property’s performance. Get a rental manager to take care of everything, from paying water rates and body corporate fees to land tax and council rates. You pay them to manage your property so get them working for you.
- Vacancy Rates – In order to make sure you are buying a property in an area where there is low supply and high demand, it’s important that you know a suburb’s current vacancy rate. Vacancy rates represent the amount of properties in a specific area that are vacant or unoccupied at a particular time. Vacancy rates can be affected by a number of factors, one of which is the amount of new properties that are being built. This is why you should always be up to speed with local council development applications. You can find this information on most local council government websites.
- Employment Drivers – It’s very important to know what employment centres are going to sustain and stimulate job growth near your property. Why is this important? Because job growth will promote steady population growth. As more people gain employment in the area, they are likely to want to live close to work too, resulting in increasing demand for property. And more demand will only continue to drive property values up.
- Transport – Location is and always has been a crucial factor when choosing where to live. People are frequently willing to sacrifice the size of their land or even the size of their home for a desirable location. Easy access to amenities is sure to increase the desirability of any area, so when looking at a property’s location, ask yourself: is it practical and easy to travel to local amenities, education centres and entertainment venues? What public transport infrastructure is already established or coming?
- NAPLAN Scores – In 2008 NAPLAN was introduced into the Australian school system. Its impact on the property market: Suburbs within catchment zones of high NAPLAN-scoring schools have seen increased demand. Parents are seeking out homes which allow their children to attend these schools that will potentially give their children a higher level of education.