What’s your ‘pub test’ for your next investment property?
This is when you strip back your plan to purchase another property to the absolute basics and see whether it stands up to scrutiny.
A property investment has a significant benefit over other forms of investment and that’s leverage. A lender may allow you to borrow more of the purchase price than for shares, for example.
Be comfortable with debt. With your own home, every cent of that debt is serviced from your own money, post-tax. On the other hand, with your investment property, the rental income comes in, there are tax benefits, and, especially in today’s low interest rate environment, those income sources can go a long way to covering costs.
Apply your best business mind to your next investment.
Broaden your horizons and don’t have your home, your first investment property and your next in the same suburb.
Supply and demand drives price growth. Look at the volume of supply coming through based on development approvals. Look at forecast population growth and how the government is planning for that, and whether there’s investment in employment hubs in suburban areas, for instance. You are looking for the suburb that is going to outperform the market. Where you love to live may not be the ideal location for an investment at all.
Consistent rental income is the greatest area of concern for new investors, especially those wanting to hold a handful of properties in their investment portfolio.
What amenities currently exist. Research what future infrastructure is planned. What is the percentage of owner-occupiers? Generally speaking, suburbs with a high percentage of owner-occupiers have a lesser supply of available rentals, therefore high demand. If tenants leave, it’s unlikely the property will remain vacant for long.
You want an investment that is fit for purpose.
What is the demographic of the area and do the property’s features and layout suit that demographic? There are some factors that will determine a good rental income and others that don’t. The chandeliers and gold taps in the bathrooms are more likely to increase the purchase price than to bring in more rent.
The greatest value is in delivering an optimum size and quality home, where the floorplan represents a good balance between tenant appeal, cost effectiveness and rental income.
When investing in property, follow a process and treat it like a business.
You don’t have to love the property, but you do need to put it in the hands of a professional who help bring you regular financial return through rent while you watch it grow in value.