Tips on picking a property investment winner.
Apartment or house? Urban or rural? Choosing an investment property can be even more challenging when you’re not limited to searching for suburbs and properties where you want to live. By looking at your goals, both personal and financial, you can come up with criteria to help you narrow the field.
Capital growth vs rental yield
An investment property could make you better off in two ways. You’ll get a steady income from rent – your rental yield – and your investment may grow in value over time, called capital gain. But which one is more important to you?
You’re choosing to invest in property for a reason. Maybe it’s your strategy for creating the income you’ll need when you retire. Or you’re looking to grow your wealth by renovating and selling. Perhaps you’re after a tax efficient investment option so you can benefit from negative gearing – where making a loss on your investment can be used to offset your other income.
Whatever your goals, they’ll influence where you should be looking and the type of property you buy. When you’re looking at data on regions or suburbs, you can check the latest figures on capital gains and rental returns to see which locations are more likely to deliver the wealth or income you’re looking for.
Historic data can be a good starting point. But how do you know if a suburb is going to stay a strong performer? Improvements to local transport links, education and healthcare can all be a good indicator of future growth in real estate values and demand for rental properties.
It’s also good to check demographic data to see how the population of a region or suburb is changing. Any strong growth in the local population is generally a good indicator of positive future outcomes for property.
With more detailed demographic breakdown, you’ll get the lowdown on who your future tenants could be. And this will help you choose a property that’s appealing to them. Couples with young children may be keen to live near parks and schools, and in a house with a backyard. Young professionals are more motivated by stylish properties with access to transport, retail and entertainment.
And should you go with an apartment or a house? In general, apartments offer higher rental yield because they’re cheaper, and houses deliver better capital growth. But this can depend on trends in different areas. If you want solid capital gain from an apartment, buying close to the CBD is a good approach but you’ll be paying a premium price too.
If you’re keen to renovate as a way of boosting your capital gain, be sure that your additions will really add value to the property’s future sale value. Seek advice from real estate agents or a certified valuer if you have any doubts.
Help from the professionals
Advice from experts such as buyer’s agents can give you information about potential investment properties that could take you months to compile. And before you seek their help, or do your own research, you’ll need to know your budget to know what you can afford and what type of mortgage will suit your investment goals.
How did you decide on an investment property to buy? Tell us about your experiences in the comments below.
Speak to a registered broker and you can start your search with confidence.