6 Things To Look For In An Investment Property
For many Australians, buying an investment property is a long-held dream – one that can build your wealth while someone else pays off your mortgage.
But for newcomers to the investment game, what do you need to know?
We reveal six things that can make your investment property a winner.
Buying a regional investment property
It might seem like a no-brainer, but a number of regional cities around Australia are able to cope with major market fluctuations better than our capital cities. Toowoomba is a terrific case in point.
Not long ago the Garden City was recognised as having the strongest housing market in regional Queensland. And despite a general cooling of property prices in the first half of 2019, Toowoomba suburbs like Middle Ridge are enjoying steady growth. The state government is investing in the city’s infrastructure – with expansions to major high schools, multimillion-dollar Toowoomba Hospital upgrades, road, rail and airport investment, and even the construction of a new, purpose-built Wilsonton Neighbourhood Centre.
So if you’re ready to take advantage of a golden investment opportunity, what should you look for? Start with these six things.
1. Investigate rental yield and capital growth
While you can get lucky in a rapidly rising market, property is generally a long-term play.
Investors who’ve been in the game for a while know that finding a home with both high rental yield and strong capital growth is very rare – which means it’s usually a choice between the two.
Strong capital growth will see bigger profits over the long term, which might seem like an obvious choice. However, if it’s paired with lower rental yield, the property may be negatively geared (i.e. your expenses like mortgage interest are higher than the rent earned). This might be great for certain tax breaks, but it might also mean you’re left out of pocket every month.
On the other hand, high rental yield will likely mean the home ends up paying for itself faster.
Conduct your own due diligence and speak to a financial planner if you’re still unsure which option is best for your particular circumstances.
2. Understand the area’s median price
Knowing the ‘going rate’ of similar properties in your chosen area will give you a better understanding of how much you’ll be able to charge for rent. It may also help you make a more cost-effective decision – after all, if one home for $500,000 can charge $400 rent but a $750,000 property in the same suburb will only earn about $500 in weekly rent, will the extra $250,000 outlay really be worth it?
There are plenty of useful property tools online that can give you an indication of the current median prices – for both sales and rentals. In Toowoomba City, for example, the median home is selling for $350,000 while the median rent is $300 per week. In more suburban Middle Ridge, however, the median price is $573,875 while rent is $430 per week.
Track what median prices have been doing over the past 5-10 years to get an indication of the suburb’s history and do some research about it’s likely future.
3. Review the suburb’s recent market performance
A suburb’s demographics and market performance play a vital role in understanding whether or not you’re on the right track for a good investment property. While you can find some of this information online with standard property searches, a local real estate agency will have the hard data to inform your decision – and they will even be able to clarify all the complex investment jargon.
You’ll want to take into account the current rental yield, its growth trajectory, and whether your property type is in high demand. It’s also worth analysing the performance history of other rental properties in the suburb. And of course vacancy rates – a lower percentage is what investors generally want – will give you a firm idea about whether the suburb is a smart investment option.
4. Location, location, location
Even though you’re not buying this property to live in, you’ll have a much more competitive rental pool if the home is in a good location. That’s why you need to be familiar with the area you’re buying in – and have done some serious research.
Think about its proximity to the CBD or business areas. Are there good schools and medical centres nearby? Are the local shops and other amenities within walking distance? A real estate expert will be able to provide you with all this information.
5. Buy near public transport and handy amenities
Public transport is a common option for renters, especially in towns with plenty of schools and universities. Toowoomba’s bus network, for example, has grown exponentially in recent years, so think about seeking out an investment property that’s within walking distance to a bus stop or train station.
6. Buy with your renter in mind
Always remember the property has to appeal to your target market: a renter who will be your tenant. This should be something you think about when you choose your location and property type. You can start by asking a local agent what types of properties are currently in demand, and which demographic of renter they appeal to in this area? What kinds of features do they expect a property to have, and what would they pay a premium for?
Turn your investment dream into a reality.
If you’re ready to start your journey into investment properties, contact an experienced local agent today.