What to look for in an investment property
What to look for in an investment property
Whether you’re a first-time investor or have an extensive property portfolio, there are important things to consider when deciding on an investment property.
Location, location, location
The location of an investment property is key. Proximity to local amenities like schools, shopping centres, restaurants, public transport, hospitals and local job opportunities will make the property much more appealing to tenants.
Plans for major infrastructure development can increase the value of a property and tenant appeal. This is found on the planning and development page within the MyBMT portal, which provides users with research and insights into nearby planning applications, also via council web pages and keeping an eye on local news updates.
2. Type of property
Understanding what type of investment property fits your goals and expectations is important. Some factors to consider include the type, condition, size, and whether to purchase a new or old property.
For instance, an older property will generally require more repairs than a newly built one but may be cheaper to purchase.
While a house will typically incur higher costs, it will most likely yield greater returns. Apartments are generally cheaper to purchase, but there are additional ongoing costs like strata fees.
Knowing what you’re prepared to put into a property in terms of money, time and effort will guide your decision. For example, if an investor is seeking a property for tenants to move into immediately, then an older property requiring renovations or extensive repairs may not be ideal in that scenario.
3. Market demand
Look for an area with strong market demand and low vacancy rates. Strong market demand will mean the property will spend less time unoccupied and typically yield a higher rental return.
Areas with a growing population, developing infrastructure and expanding community amenities generally have stronger market demand and lower vacancy rates.
4. Rental return
The average rental return is an important metric used to understand your likely cash flow. It can help you determine whether a property is likely to be positively or negatively geared, which allows you to make informed decisions based on your financial situation.
You can estimate the rental return of a property using PropCalc.
5. Capital growth
Capital growth is how much a property increases in value over time. For instance, if a property was purchased for $400,000 and six years later it’s worth $700,000 then that would be capital growth of $300,000.
Capital growth in a property will generate equity which the investor can use as leverage to buy more investment properties and, in the event of selling, make a larger profit.
There’s no way to guarantee if or how much a property will increase in value but to increase your chances, there are things an investor can look into, including local infrastructure, population growth, vacancy rates, rental yields and a number of days on the market.
An investor can look at the median selling price of homes in the area from ten or so years ago to now to get a gauge of what capital growth to expect (just remember this is never a guarantee as past market performance is not indicative of future performance). An average capital growth rate is around six per cent per annum but can vary by suburb, property type and the economic climate.
6. Tax entitlements
Owners of income-producing properties are entitled to claim a range of tax benefits, including loan interest, property management fees, council rates, strata fees, insurance premiums and depreciation deductions.
Most properties, regardless of age or type, have depreciation deductions available.
You can find out the depreciation deductions available in any property even before purchasing by using PropCalc. Knowing the depreciation available in a property before purchasing can help better plan your cash flow.
Investors should contact a specialist quantity surveyor like BMT Tax Depreciation as soon as they purchase their investment property. BMT provide a comprehensive tax depreciation schedule outlining the deductions investors are eligible to claim when completing their annual income tax return.
To learn more about the depreciation deductions available in your investment property call BMT on 1300 728 726 or Request a Quote.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit bmtqs.com.au for Australia-wide service.
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