Investment property is real estate that has been purchased with the intentions of earning a return on the investment. This return can either be through rental income, or though capital gain with the future re-sale of the property.
You might buy an investment property with different strategy in mind. You might want to by it to rent it out, therefor your return on investment (ROI) is ongoing and increasing, or you may purchase a property with an intention to sell it and create equity growth. There is another strategy, and that is to hold a property, release some equity that has been created through growth, to purchase another property.
Choosing a successful property for investment requires research and risk assessment. Property investors usually conduct a series of studies to understand property’s best use. This has a significant impact on their investment.
The first step in buying an investment property is to research where to buy the property. Look for areas with high growth, higher rental yield and low vacancy rates. Try to find out about planning changes that might impact property prices in the suburb.
The second step is to choose what to buy that appeals to the potential tenants. Usual appealing features for investment properties are: second bathroom, extra bedrooms, garage and storage space. It’s always wise to buy your investment property in areas close to transport, schools and shopping centres, if rental returns are the core focus.
When considering buying an investment property you should:
- Once you have a property in mind, compare the income expected to your outgoing expenses. You need to understand all costs associated with having an investment property. It means you should know costs of purchasing, management, repair, maintenance, taxes and selling an investment property.
- Choosing a good tenant is critical. A good tenant who maintains the property well mean you are not going to get surprised by unexpected costs. It’s always good to have a good rental manager, but it doesn’t mean you can sit aside and not getting involved. Ask questions, talk to your property manager when a repair or maintenance comes up, and inspect the property at least once a year to assure that everything is going well. It’s always a good idea to have a good landlord insurance too.
- Keep your investment property for as long as you can. Savvy investors don’t sell their properties, instead they accumulate and use leverage.
To help you with your primary research when buying an investment property, we have put together a check list to help you to start your search.