There are typically two main goals when investing in the housing market - generate passive income and grow wealth. Passive income is achieved through rent, while the wealth is generated at the time of sale, in the hope the property has grown in value and the difference in the purchase and sale price is adequate.
But how can we be sure that we will tick both of these boxes when there are so many things to consider along the way?
Whether you have a wealth of knowledge in the property game and a huge portfolio to show for it, or you’re just starting out and you’re on the hunt for your first investment, these tips should help you achieve your investment goals.
It might be a real estate cliché, but ‘location, location, location’ is the number one factor when choosing an investment property.
The area you choose to invest in will determine the type of tenant and the level of rent you will attract. The location will also help to determine the future sale price, based on upcoming infrastructure, changes in school zones and proximity to the country, beach and CBD.
Access to public transport will play a considerable factor in the demand for your rental property, especially for students and those who want accommodation with easy access to transport and workplaces.
Busy or noisy streets may put off potential clients or impact rental fees, even if the area is a top performer in the rental market.
School zones are highly attractive in both rental and purchase areas. The Real Estate Institute of Victoria reports that Melbourne homes in coveted school catchments can sell for up to $600,000 more than homes outside the school zones.
Condition of the property
Getting a building report is strongly suggested before you purchase. You might think you’re scoring a great deal or bargain on the property but be wary, there could be some underlying issues that may cost you.
The age of the property shouldn’t necessarily matter unless it’s built on stumps and in this case, it may need to be restumped, which can cost on average between $10,000- $30,000 plus. There could be issues with leaks or pipework, though they may seem like an easy fix, beyond that it could be rotted timber or even worse, mould.
It’s always the safest option to have complete clarity about the type of property, build, urgent works required, and its overall condition.
With recent changes to the Residential Tenancy Act, a leased property must meet certain criteria. If the property fails to meet such standards, it could be a costly fix, not to mention, it may sit untenanted for some time.
You may be seeking an investment property to add to your portfolio, or you may be looking for a quick flip. If the latter is your aim, there’s a particular property you should set out to find - a fixer-upper or renovator’s delight.
Purchasing this type of investment comes down to a few main factors - time, ability and an eye for design. Adding value to a home could be done with a few simple and quick renovation hacks, such as replacing the carpet, curtains or kitchen cabinets. Or it could involve more lengthy tasks such as painting, ripping down walls or replacing bathrooms, and these will require more time and costs.
Your skills, ability and experience will impact the type of renovation you want to do. If you have had prior experience in renovating or building or you work in the construction industry, internal demolitions and renovations will come to you more naturally than to a first-timer. Access to particular tools and machinery and knowledge of building will be extremely favourable in the renovation.
Having a flair for design or at least a knack for researching inspiration will help in creating the vision for your newly renovated space. When purchasing the investment property, having an eye for the current state of the house versus the potential it holds is important. This will give you an indication of what can be achieved and how the property may sell later.
Before investing, research should be your number one tool. Analysing the property market in your suburbs of interest will pay off in the long run. Look into the growth trend indicators for the property you’ve found, the suburb’s median sale price and compare it to previous years. How has the area performed and how is it likely to do in future?
Capital growth is essentially the increase in the value of the property over time. Monitoring suburb trends will allow you to make a decision as to where is a smart place to invest. Trends such as property prices, rental income rates, rental demand, yield and demographic information will help to build a picture of how much you may gain over a period of time.
While investing in a house or unit will largely be determined by your budget, location should also be the main consideration.
Understanding the demographics of your investment suburb can help establish the property type you should consider. For example, apartments positioned around universities where there tends to be a higher volume of students looking to rent will perform better than in suburbs with higher numbers of growing families. Similarly, a full-size home with a backyard will understandably be more appealing to family-focused tenants, or within a family-friendly suburb.
Houses are generally more expensive to buy, insure and maintain but can equally fetch higher rents and have stronger capital growth. While units, apartments and townhouses may be priced lower and will require less maintenance and upkeep, there may be strata or body corporate fees to consider.
When considering your next investment, seeking professional advice from your local Barry Plant agent will give you more confidence in your decision. These agents will also be able to leverage off their network to source well-priced properties in growing suburbs. To discuss your investment options, get in touch with your local Barry Plant agent today.