How to find the right property to invest in
Property can be a solid asset, one that has the potential to grow your wealth over the long term. Just two years ago, an ABS report on wealth found 1 in 3 Australians had a net wealth of over million dollars based on property ownership.
Of course, property prices go down as well, as 124,000 now former property related millionaires found out when the pandemic hit according to a Credit Suisse research. And that’s why, it’s crucial to invest in the right properties, because making a mistake in this area can cost you, and not just financially.
Property-related hiccups and setbacks can create untold stress, worry and heartache, which achieve the opposite outcome to what successful investing is all about. To help you move forward on your property journey, here are some of the factors to look for when choosing the right property for your portfolio:
1. Look for growth areas
Capital growth is a significant factor in property investment, so always be on the lookout for areas that are expanding in terms of population, the economy, and local infrastructure.
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2. Invest where you know
This doesn’t mean you should invest in your own backyard; instead it means you should get to know your potential investment location as well as you know your own home neighbourhood.
Become an expert in researching the area, from vacancy rates and demographics to council spending and capital growth rates.
It may pay to join Facebook groups dedicated to property. Just be aware that most of these groups are run as a lead generation source for so called property investment experts or brokers. Regardless, these groups can provide valuable information if you see them as a forum.
3. Hold out for returns
Especially for those whose cash flow is tight, it’s important to buy where you won’t go into the red. While markets like Sydney have been great for capital growth, they are expensive to buy into and just as expensive to hold.
Be sure to keep an eye on rental yield trends when deciding on an investment property. Take Sydney as an example, according to SQM research, average rental yield for a house in November, 2020 is 2.4%. Fortunately the home loan rates are at record low levels.
It’s important, not to get hung up on negative gearing, it’s not all what’s it’s made out to be. You would be better off if you buy an investment property whose rental income is able to cover most, if not all of the loan repayment.
And if you do want a negatively geared property, remember to talk to a trusted accountant for their advice on tax benefit matters.
4. Low occupancy location
When it comes to vacancy rates, look for a tight rental market. Review the latest vacancy rate data on your chosen suburb; investing in areas with low vacancy rates significantly limits your chances of an empty property between tenants.
5. Buy for the future
Find out what plans are in the works for an area so you can determine what its future looks like. Government and council websites often have information on infrastructure project proposals online, and you can get in touch with the local council for more details.
It’s also prudent to keep an eye on any residential developments that could be going up near amenities, such as schools and shopping hubs.
6. Choose low-maintenance properties
Look for a property that is ready to rent out immediately (unless you have big plans to add value through renovating). For instance, houses with pools and large gardens necessitate a lot of care and time, whereas a similar home on a smaller block with a flat, grassed backyard is far easier to maintain.
7. Know what tenants want
Pick a property type that appeals to the people who are actively renting in that area. For example, a small unit may be more affordable than a house, but if the local market is largely comprised of families, your investment property won’t appeal. It will also be to your advantage if a home has useful features for the target market, like off-street parking or proximity to public transport.
Choosing the right investment property requires research, and it’s crucial to collect and review facts from as many sources as you can. It’s wise to get advice from experienced investors and other experts in the industry, and to be careful not to source your investment advice from those with a vested interest in selling you something.
If a property marketer tells you an area is “set to boom” and you will benefit financially from buying there, seek a second opinion and raise a red flag, spruiker alert!
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This article via Your Investment Property does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.