10 Bullet Proof Ways To Select The Right Investment Property
Purchasing a positive cash flow property with capital growth potential is very much an achievable investment dream, but one that becomes a nightmare with an incorrect selection strategy. The long-term effect of poor decisions at this time can mean you’re hundreds of thousands of dollars behind where you could have been otherwise - a significant impact on your bottom line. Over a 10-20 year period this can be the difference of whether property investment has been worthwhile or not, but it doesn’t have to be this way. Assessing whether one particular property is better than another requires a big picture point of view, expert assistance and clarity around indicators for growth that will help build your portfolio. Here’s how to get it right.
1. The best type of property for investment suits local demographics
It’s critical to purchase something that aligns to this criteria, rather than purchasing a property that looks good according to your own emotional bias or how much money you have to spend. You must put all of that aside and consider who will rent your property. If the area predominately consists of families and you purchase a 2 bedroom unit, you may not experience a lot of rental demand.
2. Look for a desirable investment property that has several standout features
The more standout features your investment property has, the more attractive it will be to potential tenants. Your potential investment may be newly renovated, across the road from a school, around the corner from a shopping centre or railway station. For each of these standout features, your property will be in demand and more likely to command a higher rent compared with others on the local market.
3. Seek out a house and land on a manageable block size
Each gap in tenancy means less income in the bank, so make sure your property is as easy to rent as possible. When you purchase a standalone house, ensure the block on which is sits isn’t too large for a tenant to cope with, otherwise you may find it harder to rent. Let’s face it, most tenants don’t look after yards so make the choice easy and find a land size that’s small enough for them to manage.
4. Choose a location where government spending is already occurring
It can be too risky to invest in areas with growth forecast because governments can change their minds. Instead, look towards areas where millions (or sometimes billions) are already being spent - an indicator for capital growth. This includes construction of airports, schools, railway stations, hospitals, health hubs and major arterial road upgrades: providing 1000s of jobs and the preparatory signs of future population growth.
5. Ensure that your potential investment has strong capital growth potential
Not always easy to predict without expert help, you need to accurately assess why a particular area is slated for capital growth - it’s from this foundation that you’ll build your portfolio. We’ve all heard stories of investors buying in “hot spots” believing a property will grow in value, only to discover some time later there’s been no capital growth and they’ve been locked out of purchasing their next investment.
6. Select an area where employment for tenants is within easy access
Most people like to live close to where they work, so consider buying an investment property close to an employment hub to maximise the chances of strong tenancy. An area with plenty of jobs nearby will in itself promote population growth, which in turn will help your property to grow in value. This is the exact kind of capital growth you need to be able to get into the next property and build your portfolio.
7. Increase your profitability with property that allows for future development
When you purchase an investment, also consider how its future development could strengthen your portfolio e.g. through subdivision or adding a duplex. Please note though that while this makes for a solid investment, it’s crucial to make sure that the numbers really stack up on the property as it stands when you purchase. Don’t suffer financially for a future development that might take years to come to fruition.
8. Ensure your potential investment property passes all building inspections
It’s a necessity to have your property checked prior to purchase in order to identify any current or potential structural or invasive issues that may occur. If your proposed investment property doesn’t pass the pest and building tests with flying colours, you may use this to negotiate a more favourable purchase price or walk away. In this case, it may be better to find another investment property without as much risk attached.
9. Steer away from areas where oversupply could affect your capital growth
It’s important to do your research on an area to find out whether new housing estates may cause an oversupply of housing stock into the future. Tenants generally prefer to rent new property, so if you buy something older in an area affected by oversupply, you may have to drop your rent significantly to secure a tenancy. If there’s likely to be an oversupply, it’s far safer to buy elsewhere.
10. Buy a low-maintenance investment property that will look after itself
Well-purchased residential property can be self-sustaining if sourced and negotiated effectively, providing positive cash flow so you don’t need to put any additional money into its running expenses. It will also mean an easier relationship with tenants, who don’t have the hassle of ongoing maintenance issues. Instead, your investment becomes more of a set-and-forget purchase that ticks along in the background.
Much expertise goes into getting the property selection process right, but it’s something that’s available to everyone. By using this framework, even with a low buy-in price of anywhere above $200k it’s possible to find property throughout Australia’s capital cities that can provide positive cash flow and long-term capital growth in order to build your portfolio. Seek professional advice to buy well from the outset and watch your profits soar.