5 features to look for when buying an investment property

When Australians look for long-term investment, many prefer to put their money towards property, mainly because it's a physical asset they can see and touch. Although property continues to be a favoured investment choice, success is never guaranteed.

Below are 5 features to look for that could help you achieve financial success when investing in property.

Location, location, location!

Unlike buying your own home, property investors must think purely with their head, not their heart, when choosing where and what to buy. The location and type of property you buy will directly affect your rental income and capital growth.

Get to know the neighbourhood before investing. Amenities - especially public transport and access to the CBD - are hugely valuable. Schools and lifestyle offerings such as parks and retail precincts are equally valuable with the most appealing investments offering local lifestyle opportunities, cutting the need for commutes.

While a freestanding house in the suburbs may attract family renters, well-located apartments will do well with young professionals or students. Freestanding properties, including smaller homes like townhouses or villa units, may have stronger growth potential than apartments, particularly those in high-volume buildings. Furthermore, some property types will come with additional costs such as body corporate fees - so make sure to do your research.

Ensure the price is right

It's essential to research the market thoroughly to ensure you pay a reasonable price and position yourself for healthy capital growth. One strategy is to identify 'hot suburbs' that have recently seen strong prices and look for neighbouring suburbs that might be next in line.

Rental income will also influence the asking price. Ask the agent to provide you with evidence (or an estimate) of a property's rental price, and check this against similar properties advertised in your chosen suburbs. In Victoria, the Real Estate Institute (REIV) provides quarterly snapshots of median rents charged according to suburb and the number of bedrooms.

Get in contact and our BankVic home loan specialists can help you determine the right value for any property you’re looking to buy through a report from our property valuation partners.

Rental returns

Some investors negatively gear their property, accepting that their property will run at a loss and claiming those losses to possibly reduce their tax. These investors are relying heavily on capital growth for long-term wealth creation.

For investors looking for a positive income, the rental return needs to be high enough to offset costs. Apart from loan repayments, this can include agent's fees, ongoing maintenance costs, council rates and landlord's insurance. It's not easy to achieve this in the beginning, as most properties cost more to start with, and over time as the loan gets repaid the rental payments might cover the loan repayments.

A good rule of thumb is to seek a yearly rent of 5% or less of your property’s purchase price. The reason is because interest rates over the life of a property tend to hover around this mark. Doing so will usually ensure a positive average rental yield (annual rental income vs price). Be sure to run a cost spreadsheet to determine your own point of profit.

Low vacancy rates and long-term appeal

The best investment properties offer landlords the opportunity to charge good rent while attracting reliable tenants. Again – the key is research. Suburbs with low vacancy rates indicate both a strong local economy and high demand.

To attract the best possible tenants, look for properties that are in great shape or can be easily improved with a coat of paint or garden upgrade. Remember, you're in it for the longer term. Don't get caught up in passing trends but look for properties that stand out on their own merits, with features such as sizeable bedrooms, ample storage space or off-street parking.

Also consider your pricing strategy carefully. Securing a happy long-term tenant and avoiding any long vacancy periods may be more profitable than charging the highest possible rent.

Look for low maintenance

Investigate your likely maintenance costs before you buy. Engage a building inspector if necessary because undertaking major repairs (like replacing the roof) can make a significant difference to your cash flow and profit. Keeping up with maintenance will be essential to attracting and retaining quality tenants, so look for a property that offers low maintenance costs.

Contact BankVic to chat about home loans

Information in this article is general in nature and does not take into account your objectives, financial situation or needs. You should consider whether it is appropriate for you before acquiring a product or service. Property investments may involve financial risks and tax implications and you should consider your investment decisions carefully and seek personal financial advice if you are uncertain.

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