3 min read | 6 Jan 2022
The best place to buy an investment property is in a spot you can afford with a solid strategy behind you. Here’s some information on what to think about before you hit the pavements looking for investment gold.
Knowing what you want the investment to do and having an exit plan in place helps you decide where and what to buy. It helps you figure out the money you need to make it happen (including any existing equity you might already have) and gives you a razor-sharp focus.
Do you want a:
Fixer-upper to renovate and flip for a fast profit?
Rental with potential for ongoing cash flow?
A property ripe for longer-term capital growth?
Tip: Your purpose could be a mix of 2 & 3 above. So that’s a rental bringing in an income that you sell later down the track for a nice profit.
Property features to think about
You personally don’t need to fall in love with it. It’s for you to make money on. Always be thinking about what value can you make from it with minimal investment. Features like pools, elevators and gyms could add up in maintenance costs, and these will chip into your capital gains.
If you're unsure about the investment purpose that’s best for you, talk to a financial adviser or accountant. They can go through the tax implications of negative and positive gearing and answer any questions you have about your current situation.
Negative gearing means you are making a loss with your investment property as the costs to maintain the property outweighs the rental income. It may allow you to lower how much tax you pay on other income, such as your regular salary. Positive gearing means that the property is adding to your annual income and is bringing in more cash.
When looking for a property with potential for rental demand and capital growth, dig into the detail on historical trends, population growth and infrastructure development.
If new building works are underway or there are more and more people moving into the area, there’s a reason for it. Keep an eye out for new shops, new schools, transport upgrades and big(ish) local council projects.
How to do your research:
Find the best real estate agent in your potential investment area and find out what’s in high demand and low supply.
Get a free Athena Property Report to research suburb values and historical data related to the properties you’re interested in.
Head to the local council website and see what’s in development.
And if you can, talk to the locals. They’ll spill the tea!
There may be all kinds of people in your potential neighbourhood. So be sure to find out who lives there and why. When it comes to property types and styles, chances are there’s a theme worth catering to – so aim for that in your search.
For example, if you’re keen to buy in an area that’s primarily home to young families, but you find a property with a tiny bathless bathroom and fancy hideaway kitchen – ask yourself whether a young family would actually want to live there. Your investment property must be an attractive proposition for its local audience, whether they’re renters or potential buyers.
Holiday houses as investments
The jury is fairly ‘in’ on this one. Tenants are seasonal and properties can sit vacant for quite some time. While it might be the dream tree-change location for some, you could end up making a bigger loss on it than you can financially handle.
Just like shares and superannuation, your investment property has the one job to do – to make you money. So, leave the romance at the door, know your budget, have an exit plan, and go into it with all the information you need to make a smart move. Get the lowdown with your free Athena Property Report.
Read more: Using equity to buy an investment property