Choosing the right investment property
When buying an investment property, there are certain criteria that you should look for to ensure you have found a quality investment.
Location is top priority
Location plays a key role in the success of your investment property, not just helping to attract quality tenants but also giving you a better opportunity to enjoy long term capital growth.
Look for locations offering good transport links and local amenities like schools, hospitals, shopping and leisure facilities. These features generally indicate an area with strong growth prospects. Speak to the local council or check out relevant Government websites to see if there are any development plans in place, for example the construction of a new shopping centre could make an area even more appealing in the future. Also check for new infrastructure such as rail lines and roads.
Suburbs that are experiencing population growth will also tend to perform better than those where the local population is in decline. The Australian Bureau of Statistics website is a good source of information on population changes to local government areas. Also look for areas that have historically low vacancy rates and check out the socio-demographics within each to see if the property is the ‘right type’ for the majority of people living in the area. If for example you are investing in an area dominated by families, a house, semi, or town house would be the most suitable while if the area you are investing in is dominated by single young professionals, an apartment may be most suitable.
Choose a property with tenant appeal
An investment property that is hard to rent out will prove a drain on your cash flow, so to maximise your rental return look for properties that appeal to tenants.
Opt for clean, secure homes with easy access, low maintenance outdoor areas, good light and airflow and plenty of storage space. For many tenants, their car is often their most expensive asset so a property with off-street parking, preferably in a garage or carport, is likely to attract more tenant interest than one without.
Will you be a ‘hands on’ landlord?
Some landlords like to take a do-it-yourself approach to their investment property and manage it themselves. This can save money but it may also take up a considerable amount of your time.
Being a landlord also involves strict legal responsibilities such as lodgement of rental bond with the appropriate authority, preparation of lease documents and attending to tenant requests for repairs and maintenance. Making a mistake here can prove costly in terms of lost rental income or even legal action instigated by the tenant.
Consider hiring a professional
Many landlords use a professional property manager to take care of the day-to-day running of the property. A property manager looks after issues such as re-letting the property, contacting tradespeople when repairs are required, dealing with other tenant queries and inspecting the property every six to 12 months.
You can expect to pay a fee for the service, often set as a percentage of the rent, usually around 7%. The property management fee can be claimed as a tax deduction however it will eat into your rental return.
Your choice of property manager is important, so it’s worth speaking to several potential candidates before making a final choice. The management fee varies between agencies and you may be able to negotiate this, however it is more important that your property is in the hands of a competent manager.
Some of the key questions to ask before you choose a property manager include:
- Do you check tenant references?
- How big is your agency’s rent roll? (If the agency has a large rent roll this may mean that property investors trust them and they have a good reputation in the market).
- How many properties does each manager look after? (If an individual property manager looks after too many properties yours may receive insufficient attention).
- How often do you conduct property inspections? Every six months should be the minimum you accept.
- What is the average lifespan of an investment property under your management compared to the industry average?