By Sarah Mills
Choosing an investment property is a completely different prospect to choosing a home. A home is an emotional purchase based on any number of individual imperatives. An investment property, on the other hand, is simply a commercial prospect. So it's a matter of dropping your lifestyle hat and donning your financial cap when prioritising your criteria.
First and foremost, an investment property should be tenant friendly. This means it should be:
- Close to amenities such as public transport, schools and shops.
- Close to cities and major employers usually within a 50km to 100km radius of a metropolis.
- In a region with a diverse industry and employer base.
- Appropriate to the demographic profile of its location. For example, if you live near a university where there are many students, units might be an appropriate investment. However, if you are looking at a community of retirees, residences with stairs could be crossed off the list.
- Avoid features such as swimming pools and air-conditioning as these tend to break down creating unnecessary expenses.
Setting the search parameters
The next step is to narrow down the search to properties that meet your specific financial needs. When setting your search parameters, you might like to consider the following.
- The type of property you are interested in
- Target areas for investment
- Demographic benchmarks
- Price it is important to set a price range that makes reselling easy.
Type of property
Different types of property carry different risks and returns. Strata title, for example, offers greater depreciation opportunities but generally higher costs, not to mention the burden of dealing with the body corporate.
Your investment plan and gearing perspectives will also have an influence on the type of property you choose. For example, new properties offer greater depreciation allowances, which would be helpful for those opting for negative gearing. For those seeking to maximise their income, older properties may have a lot to offer.
The main types of property the average residential property investor is likely to consider include:
- holiday apartments
- serviced apartments
- hotels and resorts
- retirement villas
You need to establish criteria for the locations in which you feel comfortable investing, keeping in mind that it is often advisable to diversify your portfolio across different States and regions to reduce your risk profile. Things to consider include:
- Regions or states with different economic drivers
- City or country properties, or a mix of both
- Your familiarity with specific locations and their economies and contacts
Demographic and economic benchmarks
It is advisable to set demographic benchmarks to ensure you are buying in an area that will continue to provide an income in the future. These include:
- Minimum population levels
- Minimum population growth levels nil or negative growth is a poor sign as it suggests growing vacancy rates and falling house prices.
- Average age of the population
- Number of local industries if a town is highly dependent on a single industry then its fortunes will ride with that industry, affecting rentals and sales.
- Number and diversity of large local employers. If a thriving town depends on only one or two large employers, it can be reduced to a ghost town if an employer closes or moves.
- Number of hospitals, schools and government agencies
Beginning the search
Once you have set your search parameters, the search for an investment property begins in earnest. Properties can be sourced through a number of channels including:
- Searching online for properties in your price range
- Checking newspapers and magazine advertisements
- Registering with real estate agents around the country
- Joining a property club
- Visiting expos and trade shows
- Going direct to a developer
- Developing a good relationship with your local real estate agent
- Visiting real estate websites such as www.myhome.com.au and www.realestate.com.au
Research is the best protection you have against buying a lemon. Following is a list of things you need to know as well as key sources of information.