Each investor is different. There’s no ‘one size fits all’ answer when it comes to choosing a property that’s right for you. So where do you start? By asking yourself these 5 simple questions, you’ll be on track to secure a smart investment for your portfolio.
Is this your first investment?
The good news is you don’t have to start off small, it all depends on your budget and what you’re able to commit to. Regardless of the price, with great planning & research you can have a highly successful investment.
Is this an addition to your current portfolio?
If so, it may be smart to diversify. Should your properties come up for rent at the same time, not only will you be competing against the rest of the market for a good tenant, you’ll be competing against yourself. Try spreading your properties across a few suburbs, and a few different types (i.e. a unit, a townhouse, a character bungalow and family sized home). This will provide for a safer pool of properties to safeguard you form trends in an ever-changing market.
What are your short-term goals?
Are you after a property that’s going to offer an instantly high rental yield or an opportunity to flip and make a quick profit from selling?
During a strong market period, it will be easier to renovate properties, rent them out for a year or two (or rent then renovate), then sell them for profit.
What are your long-term goals?
Are you looking for quick capital growth or are you happy to hold the property long term? In slower economic times, holding the property for 7-10 years is usually the safer option.
Do some research in to the areas you’re buying in to discover up and coming suburbs that will likely see good capital growth.
What type of property is right for you?
Can’t decide if you want to start big or small? House or unit? Let’s take a look at what’s involved in each situation, and reflect back to your situation and skills.
Typically units will offer a slightly higher rental yield than a home. Having said that, the average tenancy is shorter – higher turnover, more letting fees, vacancies. Maintenance can work out cheaper, as exterior issues are often a Strata responsibility and on the whole; less house, less problems. Depending on the legislation in your state, you can charge tenants for water usage. Does the strata corporation have a budget for this, or is it paid by each owner? If you’re getting individual bills you can pass this cost on. If not, that’s another expense you cannot recover.
Family sized homes will on average attract longer term tenants, saving long term on letting fees and vacancy costs. Depending on the age and size of the property there may be more maintenance issues to cover over the years.
With this in mind, think about your financial situation. Do you have enough of a buffer to act on potentially costly upgrades (think hot water and air conditioner replacements) with little to no notice? Do you have the professional skills yourself to save costs any maintenance?
Above all when choosing an investment property remember the golden rule… use your head, not your heart.
You’re looking for a property that will attract the largest number of good tenants. The most common requests and needs for tenants are:
- Air conditioning (and heating) and/or ceiling fans
- Plenty of storage
- Off street parking
- Light and bright interior
- Proximity to lifestyle precincts
- Local transport options
- Zoned for popular schools
Finally, make sure you’re speaking to a variety of professionals including an accountant, financial planner, a mortgage broker and local agents. Each specialist will offer valuable insights in to various aspects of investment, incredibly valuable to your wealth creation journey.