5 things to look for in an investment property

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

At the end of the day, the aim of buying an investment property is to make a solid financial return – whether that’s through rental income 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 key to capital growth – property prices will increase if demand is high relative to the supply of properties in a suburb.

To find out whether your desired suburb has strong capital growth potential, look at how the median sale price has tracked in recent years. Has it gone up?

How many days are properties staying on the market? Are they being snapped up quickly?

What’s the auction clearance rate in the suburb? What’s the vacancy rate (i.e. the percentage of rental properties that are currently vacant in the suburb)?

These are some of the key property market data or metrics you should analyse when researching an area.

2) Rental yield

Rental yield is an important consideration in property investment. It provides an indication of how profitable a property is likely to be.

Rental yield can be calculated in gross terms (the expected annual rent, divided by the market value of the property, multiplied by 100 to get a percentage) or net terms (factoring in all your costs and fees, such as council rates, strata levies, property management fees, depreciation and insurance).

The higher the percentage, the greater your cash flow will generally be and the higher return on investment.

3) The right location

Before buying an investment property, think about what it would be like to live in the suburb yourself. What’s the lifestyle appeal like? Is there entertainment nearby? Parks? Schools?

Find out whether any major infrastructure projects are planned or underway (think of new transport links and amenities). If the area is showing signs of gentrification, such as an influx of cafes and businesses or more property renovations, it’s often a good sign of capital growth to come.

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.

A house with a backyard will likely appeal more to tenants in a family-friendly suburb than a smaller apartment, for example. 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 house with a lawn will require more maintenance than an apartment (which may also come with strata fees, mind you). An older house may also cost you more in maintenance than a newer property.

5) Features

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

Will they need a garage? Lots of storage space? Two bathrooms? An office to work from home? A fireplace for the winter?

Desirable features can help push up the rental return, so it’s important to keep them in mind when looking for the right investment property.

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