Buying an investment property is a completely different experience than buying your own home which you plan to live in. For starters, your tastes and preferences won’t play as big of a role in the property you select, unless, in the future, you’re considering downsizing or upsizing to the property you purchase.
Here are some things you should look for when buying an investment property:
- Rental Yield and Capital Growth
You’re looking to invest in a property, because you want to make money. Therefore, capital growth should be a strong consideration when you purchase. Look around each area you consider; is there potential for more development? Does the area and market behaviours suggest that every seven to ten years this property has the potential to double?
Rental income is also another important factor. Do you want a steady stream of cash flow or are you looking for a negative gearing property to begin with?
Capital growth and rental income depend on a variety of factors, including: location, sales price, rental prices in the area, demand in the area, the type of property, and amenities. You can benefit from discussing many of these factors with a real estate agent who is familiar with the property market and buyer behaviours in particular neighbourhoods.
Most real estate professionals will recommend that you know about, or at least have a pretty good feel for, an area before you purchase an investment property there. If you are looking at investing in a property in an unfamiliar area, make sure to do your research.
In terms of location, there are a number of factors to consider, including:
- What neighbourhoods surround the area
- If the side of the street the property is on is a favourable side
- Is the property on or near a busy road
- The proximity to local schools and shops
- How walkable the area is, how available public transportation is, or whether tenants will need a car
- The proximity to the CBD
- If there are parks, hospitals, entertainment, or other amenities close by
With your rental property, you’ll want to make sure that the features you have appeal to your target market. For example, if you’re targeting millennials, perhaps having a second bathroom would be more appealing than just one. For a family, maybe a lock-up garage is a huge selling point. For a retiree or young couple with a baby, perhaps you’ll want to make sure that if you buy an apartment the building has a lift for ease of access. Select a property that has wide appeal, but don’t forget to consider who typically rents in that area and what they are looking for in a property.
- Condition and Aesthetics
Even if you don’t plan on living in the home you’re buying, you should still be mindful of the condition and aesthetics of the property to ensure it appeals to a broad range of tenants. Look at the room configuration, the age and condition, and the facilities. Make sure no major work needs done (unless you’re planning on gutting it and totally renovating it) and that there are no leaks. Renovating your investment property vs renovating your home both have very different objectives, with your home renovation often being more emotional and comfort-based and your investment property renovation more about financial return.
If you’re not going into your house hunt looking for a property that you can renovate, don’t immediately write-off properties that need a fresh coat of paint or a few minor repairs. These minor fixes could increase your rental yield potential and the property could still be a great investment.
Consider reading our article, “How to Successfully Budget for Your Property Renovation.”
Run Everything Through Your “Long-Term Perspective” Lens
Remember that if you’re investing in property, you’re in this for the long-term not the short-term. When looking at the location, aesthetics, features, and yield, you should always take into account what the next seven to ten years will look like not the next one to two years.
Aside from just the purchasing side of an investment property, you’ll want to make sure you have a long-term plan for budgeting for it should you have vacancies, maintenance requirements, and any other issues that may arise.
Follow our blog for more helpful tips and to stay up-to-date on current real estate news.
If you have questions about selling your home or would like to speak to a real estate agent, contact us today. We’d be happy to offer advice.