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How to buy an Investment property – Part 2 The search for a great investment

11 March 2014

Whilst Part 1 of this blog series provided you with advice on: The foundation of a good investment; How much can I afford to spend?; In what name should I purchase the property?; and Make contact with ‘truly independent property professionals’, Part 2 aims to provide you with direction on how best to undertake searching and identifying a great property investment, whist mitigating the risk. Once again, my aim is to assist you in not only purchasing a property for the right price, but purchasing the ‘right property’ for you. Anyone can go out and purchase ‘an investment property’, and many do. However, to purchase an investment property that will truly be a great investment both now and into the future, takes a certain amount of strategy, insight, experience and out of the box thinking.

Step 2.                      

The Search for a Great Investment Property

By now you would have given careful consideration to how much you can afford to spend on the investment property and after tinkering with the banks online ‘repayment calculators’, you have a good idea of what the repayments will be, based on various loan amounts. The next step is to develop an idea of what the investment will look and feel like, before heading out the door to inspect properties for sale. I believe that you will always find what you are looking for, so it’s best to have this worked out as much as possible, before hitting the bitumen.

What type of investment property is best? – dwellings, units, townhouses

Once upon a time I would have said to definitely buy a detached house, as this way you have the highest ‘land component’ and as land is what increases in value, that’s what you want. Although this may have been ideal when an inner city house could be purchased for under $200,000 it is now not an option for everyone, given these homes now start at $500,000+. The last 25 years has also shown that the capital growth experienced by units and townhouses, when correctly identified, have similar capital growth as detached houses.

When working as a Buyer’s Agent in Brisbane, assisting investors to identify the right investment property, it is often the clients budget and locational requirements that dictate to a large extent the type of investment property sought. For example, if a client has a budget of $400,000 to $450,000 and would like to be within 4 kilometres of the Brisbane CBD, this will rule out detached houses (unless the property is for example flood affected, located on a main road etc.), though will allow the purchase of a unit or townhouse. However, if a client has a budget of $700,000 and would like to purchase within 4 kilometres of the CBD, they have all property types available to them.

Therefore, all three primary property investment products should be initially considered – detached dwellings; townhouses; and units. Each investment type has associated pro’s and con’s, and all have the potential for good capital gain and rental return if correctly identified. Starting with the suburbs you particularly like and investigating what you can purchase for your budget, if often a good place to start.

Most investors have a biased towards a particular type of property and locational attributes. This coupled with your budget, will greatly assist you identifying the type and location of your future investment property.

How do I choose where to purchase an investment property?

The aim is to purchase an investment property located in a suburb that has: Strong rental demand; a history of good capital gains; in close proximity to public transport, shops and schools; and in an area where there is strong employment fundamentals. More specific criteria that may apply to particular investments include: Proximity to café precincts, universities; in a suburb where the new supply of investment stock is limited/constrained etc.

It is often reported that investors, more often than not, purchase an investment property in the same suburb as they currently reside. Although this is good if you are living in a suburb that has the fundamentals in place for future rental growth and capital gains, it is often best to spread your gaze further afield, to choose the best investment property available. Having said this, we all have a bias and if this bias is supported by the facts and fundamentals of good property investing, excellent. The old advice ‘spread your risk’ holds true to investing in property.

What makes a great investment property?

Reasonable purchase price; strong rental demand; good capital gains history; close to public transport; strong employment fundamentals locally; reasonable holding costs; manageable maintenance and repairs etc. Other factors essential to consider include: Capital growth versus rental return; due diligence is crucial (no one likes surprises); land tax consideration; depreciation etc.

How to search for an investment property?

The large real estate portals are the best place to search for properties for sale, as all selling agents use these portals to market their properties for sale. These sites allow you to focus on particular suburbs or regions and to search for not only the type of property and price range, but also the number of bedrooms, bathrooms, car accommodation etc.

But also keep in mind that you can always hit the pavement and door knock or letter box drop. This allows you to target the particular properties that you like and if successful, can result in a purchase without having to pay agents commissions.

As I started off by saying, the more research you can do to identify the location, features and feel of your ideal investment property, the easier your search for a great investment property will be.

Summary

With a considerable number of investment properties available for sale at any one time, searching for the diamond in the rough and knowing when you find it is something that comes with practise.

Our team of Buyer’s Agents at Templeton Property are experts is searching for, identifying and acquiring great investment properties for our clients. If you would like to learn more about the process or the service we provide, please don’t hesitate to call our office on (07) 3368 1988.