Buying an investment property is generally the largest investment you will make in your life, apart from your home. So making sure you do you research and buy the right property is critical. So what should property investors look for in an investment property (IP)?
There are several boxes that need to be ticked to increase your potential profits from your investment;
- Land component
- Increasing population
- Access to Amenities
- Rental demand
- Finance
- Time frame
Land Component
History has suggested that the largest increase in property values is directly proportional to the land component of the property. The more land, the more potential for profits. Houses are a depreciating asset, actually decreasing in value over time (the ATO will allow investors to use this depreciation as a tax deduction). On the other hand, land especially in high density areas increases in value over time as supply decreases and demand increases. Units also hold a land component, however it is less than houses.
Increasing Population
The basic economic principle of supply and demand is at work here. An increasing population (as Australia and Sydney currently have) increases the need for housing, therefore increasing demand. Buying in areas with higher population growth is critical when selecting areas with increased accommodation demands.
Access to Amenities
People want to be close to amenities, be it shops, transport, schools, parks and lifestyle areas. Buying investment properties within areas offering these amenities makes sense.
Rental Demand
Our investment property should ideally be rented out to increase your return on investment (ROI) and reduce the stress of mortgage repayments. Buying in areas of higher rental demand ensure you will receive high weekly rents and lower vacancy rates on your property. Suburbs and regions close to places of work and amenities will tend to be higher rental demand areas, for example inner west Sydney. Ensure your property is well managd to avoid bad tenants and unnecessary headaches.
Finance
Getting the right loan is critical to your investments. Shop around before committing to a loan, don't simply use your personal bank. There is a wide variety of lenders available and some great products to choose from.
Timeframe
Set a realistic timeframe for your investment; don't expect to get rich overnight. History shows that property is a great long-term investment. Give your IP time to appreciate in value.
Taking care when selecting your investment property will reap the savvy investor great rewards. Research the property market well, and arm yourself with all the information possible.