According to the Bank of International Settlements, house prices in Australia have increased by 6,556% since the 1960s. This amounts to an impressive average annual growth of 8.1%. Long story short, property investors have certainly made millions through buying and selling property, and that’s before we even take into account the earnings from rental properties.
When done right, property investment can be a great way to secure financial success and stability in the future. However, before choosing a property to invest your hard-earned money in, make sure it has the following key characteristics to increase the likelihood of getting a better profit:
A Convenient Location
Location, location, location. Yes, this old adage still rings true, especially in property investment. When you’re purchasing property to sell or rent, it isn’t always wise to go for bargains in cheap areas. Be careful. If it seems significantly more affordable compared to properties in other places, it might be because fewer people want to live in that area—which will mean you’ll have trouble securing potential buyers or tenants. The more time your property remains empty, the more you’re losing out. You’ll still need to pay the mortgage even if there’s no one living in your property after all and for Victorians there are new tax laws for properties that have been vacant for more than 6 months.
A good location often means having easy access to important places and amenities such as schools, the CBD, supermarkets, and entertainment destinations. Properties that are near these areas fetch a higher purchase or rental price than those in more remote areas. A healthy or growing job market is another thing you should look out for in terms of location as it means there’s additional demand for housing or rental properties.
An Attractive Area
Taking a walk around the area where the property you’re considering is located during the day and at night to examine the atmosphere and the location’s aesthetic appeal is a good idea. Leafy streets and neighbourhoods with plenty of parks are attractive especially to those who want to raise a family away from the busy and more crowded city centre. Be wary of areas that feel rundown in general—lookout for boarded-up houses, roads with plenty of potholes, and streets with lots of trash—as prospective buyers or tenants will most likely avoid these places.
We recommend also taking a look at the turnover rate of houses in the area (real estate agents should be able to supply you with this information). If it’s high, find out exactly why. It could be that the neighbourhood is undergoing a period of gentrification (conforming more to middle-class taste) which means the property you purchase will likely increase in value. But it could also mean that the area is dropping in popularity, which means it could turn out to be an unwise investment.
It Doesn’t Need Major Repairs
Saving money by purchasing a neglected house and overhauling it makes sense if you plan to increase its value through major renovations and use the equity to buy another property. However, if you’re planning to rent it out instead, doing so might take far too long for the cash you save to be worth it. Think about it—more repairs mean a longer waiting time for your property to be ready to take in tenants.
Assessing what kind of repairs are needed and factor in the costs of materials and hiring workers is essential. If you’re looking at major repairs (e.g. foundation, wall integrity, piping, plumbing) you’ll need more time and money to make sure things are done the right way and avoid any complaints. As such, it’s usually better to opt for a property that doesn’t need an overhaul or significant repairs so you can focus on essential upgrades and renovations to increase its value and put it on the market faster.
Appeals to a Wider Audience
When choosing a rental property, it’s better to pick one that’s going to appeal to a wider range of people. This way, you increase the likelihood of attracting more offers. For example, it might not be a good idea to choose a property with an over-the-top or unusual design as it likely will be preferred by fewer people in terms of appearance. On the other hand, having nice features not found in many properties is another way to attract the attention of more people if you plan to flip the house.
If you want to invest in a larger family home, you may want to think about enticing buyers or tenants by ensuring it has items such as good parking space, built-in technological features (e.g. alarm system, CCTV), a sizeable kitchen, and a landscaped garden. Although you’ll probably have to shell out more initially, you’ll be able to command a higher asking or rental price for it when it’s your turn to offer it to the market. It also helps to investigate and determine which features people in your target area prefer so you know what to look for in choosing investment properties.
A Good Return on Investment
The ROI you’re aiming for is personal to you, but Forbes advises to stick with “the 1% rule” for rental properties. For example, if the property you want to purchase is $100,000, it should be earning at least $1,000 a month for it to be considered a worthwhile investment. This allows you to recover what you spent faster and make a profit sooner rather than later.
Look to the future, too. Even if a property doesn’t meet the 1% rule, if it’s within an area that’s becoming more developed, attracting more businesses, and gaining infrastructure upgrades, its value is likely to rise in a short amount of time, making you even more money down the line.
Take note of insurance-related fees as these will also affect the returns. If the property is located within an area prone to natural disasters, it’s likely that it will have higher insurance premiums that will eat into your profits.
Having a checklist of things to look for in an investment property is good, but it’s better if you ask guidance from the experts as well. Here at Clever Finance Solutions, we’ll assist you in making smart financial decisions, whether in expanding your property investment portfolio or choosing the best kind of loan for your needs. Get in touch with us today and start your journey to a more secure financial future.