One of the great things about investing in property is that you should ideally have no emotional connection to the place you buy. That’s quite different from choosing your own home where aspects like a building’s character or a charming garden or proximity to friends, family or work can be the main drawcards.
When you’re buying as a landlord it should be easier to take a more pragmatic approach to property - location and the tenant appeal of the place should be two key aspects to consider though this will vary depending on whether you are adopting a capital growth strategy or a rental income strategy.
The main point is to set your emotions to one side in the buying process. Bear in mind that this is a money-making venture, so buy with your head – not your heart.
If you’re looking for a place with potential for capital growth, it’s worth aiming for a property close to the CBD, because scarcity and demand will ultimately push values up. As a guide, in the 12 months ended February 2014 combined state and territory aggregate capital city values rose 9.5% compared to an increase of 2.8% in ‘rest of state’ values.
On the other hand, if you’re looking for a good rental return and a steady cash flow consider buying in the suburbs or regional centres. Prices in these areas tend to be cheaper so you’ll get a better rental yield.
In both cases, there are some general things to keep in mind when deciding where to buy:
- Try to avoid places on busy roads or directly under flight paths
- Waterside suburbs appeal to both renters and future buyers and they tend to at least hold their value.
- Look for locations with access to employment, public transport, schools and shops.
- You don’t have to buy somewhere close to where you live but you need to be familiar with the pros and cons of a location.
- Keep an eye on vacancy rates, sales prices and rental rates.
- Look at the interest in the area, the current population growth and the projected population growth.
There are lots of websites out there to help you keep up to date with property market statistics such as RP Data.
There are many of types of property to consider, but most Australians opt to invest in residential property because that’s the type they know best. If you plan to go residential you’ll need to decide between a unit and a house.
Deciding between a unit and a house:
Other things to consider when buying an investment property
- Look for properties with features that will appeal to as many people as possible e.g. second bathroom, balconies or lock up garage.
- Look for a property that will attract more than one segment of the rental market such as singles, couples, professionals, families or retirees. The needs of each segment will vary.
- Renovation can be costly but it should only be done if you think it will increase the value of the property.
- If the tenant complains about a fixture not working, it will need to be fixed.
- Find out if the place was rented in the past: how much it was rented for, if there were any vacancy periods, how long it was vacant for, and why, and whether there has been a high turnover of tenants.
To find out what is popular in the area you are looking at, talk to local rental agents and ask them about the types of properties in demand.
Continue to information about choosing an investment loan.