10 Key Factors to Consider When Buying a Rental Property
Are you thinking about buying a residential rental property to boost the returns on your investment portfolio? Investment properties can be both exciting and rewarding as long as you make the right choice. However, beyond these potential income and benefits, real estate investing can be intimidating for first-time investors.
The real estate market is challenging. With numerous pitfalls that can dramatically impact your returns, it is undeniable that thorough research is essential before you jump in, so you can fully understand the pros and cons of investing in a property.
Here are 10 key factors that can help streamline your search and make it more effective.
Location & Neighbourhood
The location and neighbourhood where you buy an investment property will greatly influence the types of tenants you attract and how easily you can keep it rented. There’s a higher chance that buying near a university could bring in students as your potential tenants. However, it’s also important to note that there's a possibility you might face summer vacancies.
Local Property Taxes
Property taxes vary from one area to another and can have a huge impact on your expenses. For instance, high property taxes in desirable neighbourhoods might be manageable, but they can be problematic in less appealing locations. So, be sure to visit a local council website or talk to a homeowner in the neighbourhood to gather more tax information.
Quality of Local Schools
The quality of local schools can significantly affect both your rental income and the property's long-term value, especially if you're investing in family-sized homes. If there are no good schools nearby, it may negatively affect the value of your investment.
Safety & Crime Rates
One of the factors that tenants often prioritise is safety. Because of this, it's crucial to learn about the crime rates in the area. You can find this information online or by visiting the local police station or public library for accurate crime statistics, including incidents like vandalism. A neighbourhood with a high crime rate may deter potential renters, while a decrease in crime can make the area more appealing.
Employment Opportunities
Locations with growing employment opportunities are more likely to attract tenants, which can help ensure a stable rental income for landlords. If you hear about a major company relocating to the area, it’s likely that workers looking for accommodation will be interested in rentals. However, keep in mind that the type of business can influence whether housing prices go up or down. If you’re comfortable with the company being in your neighbourhood, chances are your potential tenants will be too.
Amenities
Access to amenities like parks, restaurants, gyms, and public transportation can make a property more attractive to potential tenants. These features can also enhance the overall appeal of the neighbourhood.
Potential for Future Development
Look at planned or ongoing developments in the area to assess its future potential. While new developments can signal growth, they can also lead to increased competition and potentially lower property values.
Number of Rental Listings and Vacancies
If the neighbourhood has an unusually high number of rental listings, this could mean that the rental market is weak. On the other hand, a low vacancy rate suggests strong rental demand. Determine which situation applies. In either case, high vacancy rates compel landlords to lower rents to attract tenants, while low vacancy rates give landlords the opportunity to increase rents.
Rental Income Potential
Learn more about the average rent in the area to determine whether the property will generate enough rental income to cover your expenses, such as your mortgage payment and taxes. Understanding future market trends can also help you forecast long-term profitability.
Risk of Natural Disasters
Consider the likelihood of natural disasters in the area, as they can significantly impact insurance costs and reduce your rental income. Areas prone to earthquakes and flooding could result in higher premiums or property damage.
The Bottom Line
Every state in Australia has great cities, each city has desirable suburbs, and every suburb has different quality properties. It takes thorough research and groundwork to find the right combination. When you identify your ideal rental property, be sure to keep your expectations realistic.
