Size doesn't matter, and five other tips for buying profitable investment properties
Buying an investment property is as much about what it will eventually be worth as it is about the purchase price, so how do you maximise your investment's profitability?
How do you know whether your property will be in demand in the future?
It’s not all about the location, but rather the quality of the asset. Yes, some investment strategies may be focused on demolish and build, whereby the costs for building would have been considered in the profitability analysis.
If, however, this is not your scenario there is no point buying a poor asset just to be able to buy in a popular location, as your cashflow will take a blow with constant repairs and maintenance costs.
The key to buying an investment property for future demand potential is to buy a quality asset that will be favoured by owner-occupiers because ultimately, they will be the buyers willing to pay top dollar for your property because they are driven more by emotion than profit margins.
If you buy into an area that is dominated by investors, you may find that you will be receiving lowball offers when it comes time to sell, as you will be selling to investors who want to buy for the cheapest price possible.
Six factors driving investment property demand
Access to amenities will certainly increase the liveability of your property, which is what owner-occupiers seek when buying a home.
Having access to supermarkets, doctors, dentists and childcare are important for liveability, and if your property is a good distance to schools, parks and entertainment venues then families will view this as a more desirable place to live.
Having good transport networks, including options for train, bus and tram will be advantageous but be cautious about access to freeways and new highways.
Access to major arterial roads is important but you do not want to be investing in a property sitting on the kerb of a six-lane expressway.
Investing into a property where there are good job opportunities and the property is located a good distance from city centre, or business districts will help to increase the demand for your property in future.
There will always be demand for properties close to industries and city centres particularly when interstate migration is high.
Typically, new migrants will seek to live closer to work until they gain a better understanding of the area and surrounds.
Culture and community are ranked highly by owner-occupiers, and families will seek to live in areas that have good community vibes.
Areas that have well maintained parks and have local events, such as farmer’s markets and community events, will attract family-orientated home buyers that will drive up the growth in future.
Being close to coffee shops and decent takeaway restaurants will also add to the desirability of an area.
Understanding the demographics of the area and buying a suitable property will set you apart from other investors.
Matching up the type and size of the property in an area will help the future demand of your property.
For example, there is no point buying a one-bedroom apartment in an area that is dominated by families, as well as buying the largest house you can afford in an area that is dominated by young couples, singles, and university students wanting to live amongst the hustle and bustle of the city.
If the largest demand is for four-bedroom houses, there is no point buying a larger property just because your money permits.
Think about what the demand will be in future, as you will want buyers to fall in love with your property and drive up the price.
The main lesson is that a larger size property doesn’t always mean larger returns
You really want to set your property apart, and make it look house proud, and not just an investor’s soulless property.
Having something unique about a property will really grab a buyers’ attention. This may be something like heritage features, landscaping, study nooks, abundance of natural light, etc.
The purpose of having something unique about your property is to really grab a buyer’s attention so they become emotional and fall in love with your property.
Even performing a minor cosmetic renovation so your property has that new paint and carpets smell might pop your property above the rest.
When you are looking to buy an investment property, it may seem a bridge too far to consider your selling strategy but it really is essential in determining what your returns might be.
When researching an area to buy in, you need to assess the local council’s plans for future development and where they will be spending their money so your property is well located, close to amenities (current and future), in an area that will have good job prospects, and offer great lifestyle options.
Considering your exit strategy will ensure you commit to investing in an asset that will work best for your needs.