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How to choose an investment property

How to choose an investment property

  • 03 Jan 2023
  • Sam Cole

How to choose an investment property

Have you decided to enter the property investment market or add to your investment portfolio this year?  If so, there are some key things you should look out for as you research. Keep reading to learn how to be as prepared as possible as you start your investment property search.

Determine your desired rental yield

There are three factors that make a property a good investment: rental yield, capital growth, and demand. It's important to balance your desired rental yield with capital growth. For example, a low-value home in a less desirable area may return a high rental yield, but the higher yield may be outweighed by the increased risk of buying in the area. Similarly, a low rental yield (below or around 3%) could indicate that your property is overvalued or that it’s in a blue-chip area where you are more likely to make a return on your investment through capital growth. The weighting you give to rental yield versus capital growth will depend on your unique wealth-building goals and risk appetite.

Decide on the building type

Whether you buy a unit, apartment, townhouse, or detached home, it needs to fit within your budget and help you achieve your objectives. Smaller units and apartments can be a great way to enter the market or diversify your portfolio, but you also need to keep extra expenses like body corporate fees in mind. Similarly, an older detached family home may be a great option, but your annual maintenance costs may be higher than those for a new build or an apartment. The building type you choose will depend on your needs and how much of your budget you can allocate to the expense of owning an investment property.

Research locations

Once your budget and desired rental yield are calculated, you can start narrowing down which suburbs may suit your investment criteria. A good way to do this is by shortlisting some locations and visiting cafes, shops, and other amenities to get a sense of the community in the area. This is also a good time to make sure any locations that you’re researching are well-serviced with transport options, quality schools and public amenities such as parks, beaches, and walking or cycling tracks.

Inspect properties and get ready to buy

Once you’ve decided where you’d like to buy your next investment property, and you’ve gotten to know the area, start looking at some homes to understand what kind of property you can buy. This may show you that you need to explore other areas if your desired home is outside your budget, or you may even find that you can get a better deal than you expected. Just like researching locations, seeing as many properties as possible will give you a good indication of what’s worth putting in an offer or bidding on when it’s time to buy.

Growing your property portfolio is an exciting time. Whether you’re looking to buy in a capital city or secure a new asset in a regional area, keeping the items above in mind will help to bring you some clarity in your property search. And just like buying your own home, expanding your portfolio is a big decision, so make sure you speak with qualified financial and legal advisors to make sure everything works for your unique situation.

Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.