7 Key Principles for Buying and Owning an Investment Property

January 24, 2018

 

1.     Consider the importance of key design components (keeping of course within your budget!) 

Key factors include:

  • aspect - north facing blocks were traditionally preferred in Australia, but may not be ideal – more importantly, consider whether the backyard and any living and entertaining areas are exposed to the hot afternoon sun in summer. Air conditioning in homes as an almost standard feature has also lessened the importance of land aspect. Be open to assessing this factor on its merits!

  • block size – you may like a large block and yard space, but tenants often don’t want more lawn and gardens to look after. Many newer estates have parks, children’s play areas, and other community facilities which lessen the need for a large yard    

  • a functional kitchen layout with adequate bench space and cupboards

  • at least the main bedroom with walk-in robe and ensuite

  • double car spaces, preferably double lock up garages ; avoid steep driveways

2.     Allow your tenants to have pets.

This should yield you a reasonably significant premium on the rent (possibly $50 or more per week) depending on the area and demographics of the locality. It may also increase the likelihood of retaining quality long-term tenants.

3.     Be conservative in your rental return expectations

Preferably obtain a professional market appraisal and opinion. Ideally get a ‘second opinion’ on the estimated rental returns with another real estate agent or property management specialist.

4.     Consider dual dwellings or duplexes

These property types can often be worth more than the purchase price you have paid once completed. They then will often provide a rental return of 6-7% per annum and in some cases even higher.

5.     Conversely – consider and factor in ongoing costs

Always calculate net returns not gross (i.e. the return AFTER all ongoing costs) especially on strata titled properties. Remember that multiple dwelling complexes (apartments, townhouses, in some cases duplexes and villas) will have body corporate and other ongoing costs that you are obliged to contribute to every year. You have little if any control over these costs and they are likely to escalate over time as the buildings age and maintenance costs increase. Large apartment complexes with lifts and onsite amenities (e.g. shared facilities such as pool, gymnasium, etc) often have extremely high ongoing costs which significantly erode your net investment returns

6.     Location, Location, Location

Locations close to everything your tenants may need such as quality schools, shopping centres, hotels and sporting clubs, and employment hubs. These factors provide your tenants the opportunity to involve themselves in the local community, which in turn increases the likelihood that they will remain in the area (and as your tenants) longer term. Access to (but not on!) highways and/or major arterial roads may also be a consideration.  

And lastly – number 7 – perhaps most importantly for an investor……………

You are buying this property as an investment – NOT for you to live in.

Therefore your buying decision should be made based on investment principles, not on whether you would want to live in the location or even want to live in the house itself, because you never will!

Buying a home that you will be living in is always a highly emotional decision. Even when buying a property for investment it is very hard to completely remove the emotional elements from your decision. Whilst this is not necessarily a bad thing, as to some extent you have to consider the attractiveness to and liveability of the property for a tenant, do not allow it cloud your judgement in assessing whether a property stacks up as a long term investment.

Your investment property must stack up as an investment! Always make the final decision with your head not your heart!

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