What makes A GREAT Investment property?
By Trudy Weston
So, what separates the really successful investors from the average investors?
It is the properties they buy and how they look at their investments.
Treat your property investment like a business. Know what your objectives are. Most investors want to create a passive income stream. What is yours?
Before you make a purchase of an investment property you will need to know what makes a great residential investment property.
If the property covers all costs of ownership (mortgage interest, rates, insurance and maintenance), it won’t put additional strain on your resources, making it easy to own. As rents increase, a property that covers its costs today, should produce increasingly positive cash-flows in the future, giving you your passive income. This is essential. If a property doesn’t have good income, look for another.
Look for a property that is located in an area that is appealing to tenants. There will have periods of vacancy, but if the property is in an area that is appealing to tenants, you will easily be able to replace tenants when they leave. The majority of tenants want to live close to shops, transport links and other services. Close to the city and suburban shopping centres is best. So, location! Location! Location!
The configuration will also need to appeal to as many prospective tenants - and future buyers - as possible. Your target tenant market will depend on the location, so too different configurations will be suitable depending on the location. 2-bedroom apartments maybe great for inner city professional couples, but not in the suburbs. Where a 7-bedroom house maybe a higher risk than a 4-bed house with a 3-bed flat below, or a 3-bedroom house is lower risk than 3 x 1-bed flats.
Consider not only the number of bedrooms but the layout, eg open plan living areas. If it doesn’t appeal to you, odds are it won’t appeal to others.
If you can add value, and increase rental income, this may fast track your ability to get your next property faster. Simple cosmetic renovations can be done quite cost effectively and can add significant rental income. Adding an extra bedroom from a large lounge or repurposing a laundry room will add enormous rental income and value to the property. Turn a basement into a self-contained flat. A large back yard may fit a self-contained “tiny home” unit. You might be able to subdivide the back yard in the future. All these options represent equity. This can increase your loan to value ratio giving you the opportunity for your next investment.
Often investors throw in the towel because of the seemingly ongoing maintenance costs. “Healthy Home” law changes have certainly added to this in the last couple of years. Look for low maintenance options. When repairs do need to be done, don’t do patch jobs. Eventually the job will need to be done right. A property that requires lots of ongoing maintenance is time consuming and money wasting, which in turn will keep you from continuing to building your portfolio.
Another reason property investors give up is dealing with tenants. Chasing rent, water charges, moving in, moving out, property inspections… and the list goes on. A good property manager can take the hassle out of all this. While pay them a percentage of the rent, they also insure you get a good tenant, by running credit and background checks, and make sure you stay compliant with the latest legislation. A good property manager is well worth the money.
In summary, if you can buy a well maintained, free-standing property with a fee simple title, in a high demand location, with a strong cashflow and the ability to add value, then you are in PROPERTY INVESTMENT HEAVEN!
Use the below check list to make your next investment. Maybe your current investments have added earning / value potential that you haven’t realised yet. If you have owned your investment property for some time, you may have already accumulated enough equity to purchase your next investment.
- Potential rental income (Yield)
- Cover cost
- Appeal to potential tenant
- Add value opportunity
- Low Maintenance costs
- Capital Gain potential