When purchasing an investment property, there are a number of factors that could increase or reduce your potential return on investment. In this case it’s not just location, location, location.
When considering a property for investment purposes, the most important question to ask is ‘will it be attractive to tenants?’. But how do you know what will appeal to someone you’ve never met? Settling on a handful of locations is a good start. Young families and couples are the ones that drive capital growth and so a location that is within a reasonable distance to schools, entertainment, transport, and an employment hub is one to look out for. Other ideal factors are a low vacancy rate and relatively high rental yield.
Although location plays a major role, it’s by no means the only defining factor. There is a misconception that a lot of people subscribe to when selling investment properties, which is to disregard the quality because you don’t have to live in it. You should be looking to buy a owner-occupied quality property, because someone has to live in it. And when buying an investment property, you have to have an exit strategy, which will generally involve selling to homeowners as well as investors.
To get the most value, you need to think about the demographic of renters who are likely to be living in the area. You have to match the property with the area. If you put a good quality, decent sized, one bedroom apartment in the inner city, it would be a great investment, however depending on the city if you put it 30km out it may not garner as much interest.
When investing in any kind of property be wary of any danger signs. One of the biggest mistakes Aussies make is not knowing what their cash flow is. Bad cashflow is worse than paying too much for the property. It is vital to know how much your chosen property is going to cost before tax every week/month/year after you settle. There’s no point in buying a top quality property if it’s going to send you broke. Check out our other post “How to develop optimal offer price and forecast cashflow using the cashflow calculator” in order to forecast cashflow position after property settles.
When looking to purchase an investment property, ensure the expert you are dealing with is actually an expert. Everyone has an opinion on property. Your broker will be able to connect you with trusted professionals in their own network. You always have to be wary of somebody who tells you that their way is the only way to invest. Only buying for cash flow is flawed, only buying for capital growth is flawed too. You have to buy property that’s going to work for your unique financial position.
As you can see there are lots of considerations to be factored in. Contact us today to book in a 15 mins conversation with us to see how we can help you with maximizing ROI on your IP!