How to select an investment property

REAL ESTATE

Buying an investment property can be a smart and rewarding financial decision. There are many benefits such as capital growth, a return on your initial investment, passive income for retirement and tax deductions. 

But what do we mean by an investment property? Specifically, we’re referring to a property that you plan to purchase and rent out to tenants, for the purpose of generating income and equity growth. 

While investing in property is exciting, there are plenty of hurdles to overcome. There are many considerations such as saving for the initial deposit and managing tenants; however, it is the asset selection and property itself that will really make the difference to your investment returns long-term. 

Always look for properties in locations that will increase in value over the long-term and provide strong rental returns. While this may sound simple, in practice it’s often difficult to achieve both, as properties with high capital growth often have low rental yields (which can impact your monthly cash flow), and properties with high rental yields often have low capital growth. However, there are certain key elements to look for in an investment property to maximise your chances of success. 

Location, location, location.

Location is critical and is arguably the number one factor to consider when buying an investment property. 

Think location first, and the physical property second. Once you purchase a property, you can easily do things to improve or extend the property itself, however you can’t really improve the location.

Generally, land values increase over time. Why is this? Simply because, land is a finite resource – there is a limited supply of land available, and a limited number of lifestyle amenities that buyers find attractive. 

Remember, the property’s location will do 80% of the heavy-lifting over time – so be sure to select the best location possible, for your price-point. 

What makes an ideal suburb?

It is critical to get the suburb selection right.  Always look at a suburb and street, from an owner-occupier’s perspective. Owner-occupiers vastly outnumber investors in the market – in terms of absolute numbers, and in terms of the capacity to pay due to being emotionally charged. Therefore, in the long-term demand from owner-occupiers has a stronger effect on price growth, than demand from investors – who are typically, more price sensitive. 

It is wise to select a location and property that will appeal to a diverse range of buyer types, but particularly upgraders, families with children and couples.

When considering a suburb there are key elements to look for. Ideally, the property should be situated in a predominantly family-friendly residential area with a variety of attractive lifestyle benefits within close range, including parks, recreational facilities, cafes, restaurants, medical centres, day-care facilities, good transport connections, and shopping centres. 

It’s wise to choose a property in a strong school catchment, or in close proximity to well-regarded primary and secondary schools. Quiet, safe suburbs with low crime levels will always be highly desirable.

It’s not always possible to purchase in the best street, in the best suburb at the best price – but purchasing as close as possible to highly desirable suburbs, even one or two suburbs further, will ensure your property’s value will likely increase due to its proximity to sought-after local amenities.  

Keep in mind, as part of your search and selection, there are key elements to avoid too. Properties that are located on main roads, next to industrial areas and business parks, or lacking in transport options will see less “emotional” demand from buyers, and are likely to not appreciate as much as well-positioned properties. Remember the age-old saying – “buy-cheap, sell-cheap”.  

Always research recently sold comparable properties to form an understanding of what the “market price” truly is. Never purchase a property sight unseen; even if the price is perceived to be “under-market” value. Always visit the property. Drive past the property and walk around the surrounding streets to get a really good sense of the neighbourhood.

Try visit the property multiple times, both during the week and weekends. If you come across any neighbours, ask them what they think of the suburb too. 

Always seek advice from a trusted professional.

Purchasing and investing in real estate is exciting and when done well, can significantly transform your life.  Now is a great time to get started on your property journey, or continue climbing the property ladder, as interest rates are at an all-time low. Our agency is also seeing high-quality family-oriented supply begin to come onto the market, and this is set to continue as we progress through Spring and approach Summer.

To learn more about the benefits of real estate investing and what prices may do long-term, please contact us at One Agency.  With One Agency being one of Mildura’s most trusted real estate agencies, we are well placed to provide you with our view of the current market based on our local experience. We’ll thoroughly guide you through the process and help you take advantage of this opportune time in the property market.

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