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 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,” says an MFAA Mortgage and Finance Broker. 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 mistruth 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,” advises another broker. “You have to buy a homeowner quality property, because someone has to live in it,” the broker says. “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,” says the broker. “If you put a good quality, decent sized, one bedroom apartment in the inner city, it would be a great investment, however if you put it 30km out, it wouldn’t garner as much interest.”
When investing in any kind of property, be wary of any danger signs. One of the biggest mistakes Australians make is not knowing what their cash flow is. “Bad cash flow is worse than paying too much for the property,” advises the broker. “It is vital to know how much your chosen property is going to cost after tax, every week after you settle. There’s no point in buying a top quality property if it’s going to send you broke.”
When looking to purchase an investment property, ensure the expert you are dealing with is actually an expert. “Everyone has an opinion on property,” says the broker. 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,” advises the MFAA broker. “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 you.”
As well as speaking to a real estate expert, you can speak to us on 03 5201 7969 to get an understanding on your financial position.
Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.
Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.