How Do You Find A Good Investment Property?

The dream rental property is low maintenance, in demand by buyers and tenants, has high rental yields and excellent capital growth. The property runs itself and you pay other people to look after it for you. Sounds fantastic but does this property exist?

A property with the above specs is hard to come by in 2020. In most cases, ir requires a team of professionals to find and run smoothly.

Knowledge is vital to your success in generating wealth, in this article we share some of the tools in spotting some of the best properties in a suburb.

Working out rental yield?

High Rental yield: this is a measure of how much cash an income generating asset produces each year as a percentage of that asset’s value. Some properties offer low rental yield but good capital growth and vice versa.

To work out net rental yield you need to calculate annual rental income including expenses.

Do this by taking weekly rental income and multiply by 52 then subtracting annual expenses. Then divide annual rental income by the property’s total cost, then multiply by 100.

Use this simple calculation:

Net rental yield = (Annual rental income – Annual expenses) / (Total property costs) x 100

Investors use rental yield to compare properties. A high rental yield results in better cash flow, which helps to improve the return on investment. When buying a property, real estate agents, property managers and buyer’s agents can help you with accurate rental yields.

Victoria Rental Yields Info Graph: 

How to find capital growth property:

An increase in capital growth is created by the strength of buying demand when you decide to cash in and sell. The idea is to have so much buying demand that the value of the property increases in value more than the average property in the area. The factors that affect capital growth:

• Location: good proximity to amenities is something all buyers and tenants look out for. Look for properties that have it all. Access to:
• Train or tram station,
• Close to highways,
• In demand school zones.
• Walking distance to shopping centres, parks and walking tracks.
• Natural amenities.
• Age & condition: A lot of older property can tick the location box but have high maintenance costs. Expensive repairs can add up so it is wise to factor in a maintenance fund to the purchase price which will last over the life of the property. Some maintenance can be planned, most will be a surprise so having available funds to deal with upcoming problems makes owning investments less stressful.
• Improvements: You can easily create open plan living, add value by adding a granny flat, unit, extending a carport or garage, light renovations.
• Neighbourhood: Are the streets and homes well kept? Do people want to live in the area? Look for a suburb with low rental vacancy rates.

Quick tip: The rental vacancy rate is an economic indicator which measures the percentage of rental homes that are vacant.

Attracting Tenants: Tenants that pay rent on time and look after the property like you would, are out there and looking for good homes. Buying the right property is a big part of finding this kind of tenant.

The other is maintaining a healthy relationship once you have them. For more information on this topic read our article on 5 TIPS TO BEING A GOOD LANDLORD.

Q: So who are the main people you need around you to buy a good rental property?

If you have never purchased a property before it’s a good idea to speak to people who are ‘in the know’ to avoid the typical mistakes of buying.

Mistakes almost always cost you money either in rental yield, holding costs or a low selling price.

Then there is the emotional roller coaster of real estate that hits you every time a mistake surfaces. They can turn into a long, drawn out process that can drain your funds and impact your quality of living.

Property ownership can be stress-free if you make the right decisions when you purchase and lease out a property. The key is making the right moves from the beginning.

When buying a property, getting advice from the right people – professionals that are experts in their area – can put you years ahead of where you would naturally end up. They can save you tens of thousands of dollars and literally keep you in the game. They can be the difference between buying a second or third property vs. not buying at all.

10 Mistakes When Buying An Investment Property:

1. Property that requires regular maintenance – Usually older homes fall into this category.
2. Property that doesn’t attract tenants – this can force you to make risky decisions with below average tenants.
3. Buying cheap property that has spent too much time on the market. You will most likely have the same difficulty selling.
4. Property that has larger than normal outgoings like body corporate rates.
5. Property located on busy main roads.
6. Property that is isolated from public amenities.
7. Suburbs that have sluggish capital growth.
8. Property that isn’t typical for the suburb.
9. Committing to renovations that are too large.
10. Loan serviceability. Too large of a gap between loan repayments and rent.

Conclusion

Many people do things just for the sake of doing things and their results are usually mediocre. Getting help when buying property can give you the edge you need for financial security.

If you’re interested in finding out more about how a boutique property manger can help, Property Managers Melb offers a complementary first consultation.

In the meeting your consultant will give you a rental appraisal, assess your current scenario and provide a complementary action plan.

For more information on the service please call us directly on 1300 00 MELB or leave your details on our contact page. 

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