How to find the right investment property

The thought of investing in property is an exciting one, full of mogul-like dreams and financial security. But like any investment there are pitfalls and traps too.

One of the keys to success is finding the right property, in an area with the right mix of reliable rental income and potential for capital growth. Forget about today’s hotspots, you want an area on its way up, that you think could be tomorrow’s hotspot. Or in five years’ time.

Finding these areas is not as daunting as it sounds. Hundreds emerge every year all over Australia. It’s all about setting clear goals and doing your research and due diligence. Sometimes a bit of local knowledge can be invaluable here. It’s also about remembering that this is a financial decision, not an emotional one. You need to think with your investor’s head, not your heart.

Build a strategy and know your goals

Many people become investors with no real vision of what they want to do with that property. They see something they like, buy it, and then make it up as they go with the help of their accountant. The most successful investors, however, come at the task with clear goals, a considered strategy and then purchase homes that meet those tactics.

So it’s important to understand and define exactly what your property investment goals are:

• Is your main priority long-term capital growth and a retirement nest egg, or do you want to buy a renovator’s delight that you can fix up and sell for a quick profit?
• Are you looking to negatively gear the property and buy a house you think will appreciate over time?
• Or do you want to positively gear the investment and buy an apartment for maximum rental yield to use as a cash flow and income tool?

Each of these strategies requires very different investment properties, in terms of the home itself, the location and the price. So once you have a rough idea of what you want out of the property, then you can start to think about what type of home to buy and where.

Speaking to your accountant or financial planner and getting their professional advice can help you clarify your goals and any tax implications.

Choosing the right location

No matter what your strategy, property investment is all about capital growth, balanced by reliable rental returns. So firstly look to invest in areas with strong rental demand that are close to transport, schools, universities, business centres and community facilities like parks and shops. Location, location, location as they say.

For maximum capital growth you need to look for areas that are expanding. An area you feel could be about to take off and has strong potential for growth in the future. Upcoming redevelopments, infrastructure or transport improvements, new shops and cafes, council projects and increases in a suburb’s population are all good signs.

Once you’ve narrowed your search down to a couple of suburbs, do your research to see what the area’s historic capital growth has been over the years, whether the vacancy rate is low and what the average rental returns are like. To save yourself time get a CoreLogic property report on the area. It will give you a snapshot of the suburb’s key data and insights, along with rental yields.

What sort of property do you want to buy?

Old or new. High rise or apartment block. House or unit. There are a lot of choices when it comes the type of property you can buy. There’s no right or wrong decision, or hard and fast rule, when it comes to the type of property you choose. Much of it will probably be dictated by your strategy, your borrowing power and perhaps the areas you’re looking in. But there are a few things that historical data can tell us that you can use to inform your decision.

• On the whole over the years, houses have delivered greater capital growth and apartments provide better rental yield.
• Lower density apartment blocks generally have better capital growth and lower overheads than high rise apartments – unless there’s a magnificent view.
• There are a multitude of new apartment complexes and housing developments in our capital cities that allow you to save on stamp duty by buying off the plan and provide you with tax depreciation benefits that apply to new buildings. However, many of the older buildings offer larger living spaces and can appeal to renters looking for a bit more charm and character.

Know what tenants want

Picturing the type of tenant you want to attract can also help you choose your property. Find a home that will appeal to them, remembering it’s not what you want here, but what they’re looking for. Highly livable, not I could live there.

If it’s a couple with children then a garden, extra bedrooms and proximity to parks and schools will be important, Young professionals may want a stylish terrace close to cafes and shops. While university students may be looking for an apartment in a security building close to transport, bars and restaurants.

The other things you need to consider are what sort of properties are in demand in certain areas. For instance, international university students may prefer one bedroom apartments over two bedders. By talking to local real estate agents or property managers you will get a feel for what kind of property is in demand.

When inspecting properties, there are also certain features with mass appeal that you should look for, like a second bathroom, internal laundry, balcony, car parking or lock-up garage, air conditioning and storage.

Talk to a specialist

Once you’ve found your ideal investment property our ING home loan specialists are here to help. They can give you a clearer indication of how much you can borrow with the help of our borrowing power calculator and make sure you’re not over-committing yourself. They can also help with loan pre-approval, if you want to make an offer or bid at auction.