Five key considerations when buying an investment property

Finding the right investment property for you is different from finding your own home.

At the end of the day, the objective of buying an investment property is to make a decent financial return – whether that’s through rental income and / or capital growth. That’s why it’s so important to be savvy about what and where you buy.

Here are some key things to look for in an investment property.

1. Capital growth potential

Capital growth is how much your property goes up in value over time. Supply and demand is the key to capital growth – property prices will increase when demand is high relative to the supply of properties.

2. Rental yield

Rental yield is an important consideration as it provides an indication of how profitable a property is likely to be. Rental yield can be calculated very easily.

Gross yield is equal to the total value of the property divided by the expected annual rent, multiplied by 100 to give you a percentage. Net yield factors in all your costs and fees, such as council and water rates, body corporate fees, property management fees, depreciation and insurance.

Generally speaking, the higher the percentage, the greater your cash flow will be and the higher the return on the investment.

3. The right location

Before buying an investment property, think about what it would be like to live in the suburb yourself. What is the lifestyle appeal like? Are there parks, schools and entertainment nearby? Find out whether any major infrastructure projects are planned or underway, like new transport links and hospitals. 

4. The right property type

The type of property you buy will largely depend on your budget but think about what will be in demand in your suburb.

For example, a house with a backyard will likely appeal more to tenants in a family-friendly suburb than a smaller apartment. On the other hand, a unit may work well if there are a lot of single professionals or university students in the area.

Also, consider the maintenance involved. A new house or perhaps an apartment will generally require less maintenance than an older house.

5. Features

Lastly, consider the features that any prospective tenants may be looking for.

Will they require a garage? Perhaps plenty of storage space? Maybe two bathrooms? An office to work from home? A fireplace for the winter? Desirable features can help push up the rental return and any potential capital growth, so it’s important to keep them in mind when looking for the right investment property.

We can help

If you need advice and guidance to ensure you are making the right property investment decisions, please contact our team on 03 9888 3175. We will get you sorted.