Buying Investment Grade Property
By | 15th Jun 16

What Makes a Good investment property and what to consider before buying?

Over the last fifteen years we have bought thousands of quality investment properties on behalf of clients. So what makes a property “investment grade” and a good long term investment? Read this article created by our Buyer’s Advocates to provide some valuable tips when buying your next investment property.

Location, Location, Location

Look for a property within walking distance to public transport (ideally trains or trams), shops and parks or the beach. Depending on the style of property, being within a school zone will always help ensure your property is rented out quickly as many people could not afford to buy within these zones but they can afford to rent. Always research the area before making a purchase as it is important to be informed and find out if there is any planned developments or re-zoning within your immediate area that could affect your investment return long or short term. 

Room for improvement

When buying a property, if it is new or already refurbished there is less chance for you to add value to your property to assist your capital growth. Renovations do not always have to be costly but painting, carpeting, replacing outdated light fittings and wet areas can add tens of thousands of dollars to your market value. This can also help add equity to your investment to assist you with your next purchase.

Supply and Demand

You must always consider the availability of similar properties within your area, choose properties which have unique features to help your property stand out amongst the rest. Many inner Melbourne suburbs are experiencing a high volume of apartment developments which gives tenants and buyers the power of choice. If you are buying in an area with a high number of high rise one bedroom apartments, consider a more boutique building, something with more accommodation, outdoor space and car parking. Equally if you are investing in an area with a high number of family homes look at the availability of smaller properties such as single level villa units as these are ideal for downsizers or younger residents who still want to stay within the area with family.

Long or Short Term

Is your investment plan long or short term? This is a vital question to ask yourself before starting or adding to your property portfolio. Some investments will earn you a high return quickly especially if you are planning on doing improvements or if there is rezoning that may affect your property. Other investments will need to be held for up to 10 years or more to see a worthwhile return.  

Orientation & Floor Plan

Look at the floor plan of the property to make sure it ‘flows’. Some floor plans can be changed for minimal cost, but if structural changes are required this could end up being very costly.  When it comes to orientation, North facing living areas and entertaining spaces are generally favoured as they have more natural light. A south facing living area or entertaining area will lack light.  

High Yield versus Capital Growth

This will be a personal decision. You need to consider what is going to be most suitable for your financial situation and what your goals are. For some a high yield is vital to help minimise any out of pocket costs and for others, they are willing to accept a lower yield in return for high capital growth.

Lending Criteria

Many people are unaware that the lending criteria is different for certain properties. Most banks will only loan you less money or no money if the property is a risk under the banks requirements.  Certain suburbs are deemed higher risk by the bank and they will require you to place down a higher deposit. The size of an apartment can also affect your lending if it is deemed too small.

The Costs

Many people do not consider all the costs associated with purchasing and or selling an investment property. Remember to account for stamp duty, conveyancer fees, ongoing payment of outgoings such as rates or Owners Corporation fees, land tax, Property Management fees and capital gains tax when you come to sell. Before making any investment, you should also consider your own financial situation and if it is of more benefit for you to be positively or negatively geared. These will all be factors to consider when deciding what the best investment decision for you will be.

These are just a few areas that need to be considered when buying an investment property. For further advice on how to purchase your first investment property or to grow your portfolio, contact one of our experienced Buyer’s Advocates by calling 03 – 9883 8900 or visit our website at www.advantageproperty.com.au