How to Choose an Investment Property

If you’ve decided to invest in property – you’ve made a wise choice. In this difficult economic climate, property in some areas has increased where so many other other investments have failed. Certain locations have seen property values skyrocket. But even if you don’t live near one of those areas, property can still be a sustainable and secure way to earn a good yield on your investment.

One of the best things about property investment is that it works on two levels. Firstly, if you rent the property out to tenants, you should earn a yield that’s comparable to many other types of investments. Secondly, the principle should hopefully also increase in value – making your property worth more in the long-run and when you finally decide to sell.

Location

The location of your investment property is hugely important, for a couple of different reasons. First, what is the property market like in the specific location you’re looking at? Have house prices gone up or down over the last few years? Buying a property in a shrinking market is a bad idea, unless you’ve got specific information that the market is due for an upturn.

You’ll generally want a property somewhere that’s drawing interest. But how difficult is it to fill your property with good tenants in that specific area? Are there poor rental returns even though prices are going up? Is there an under-supply of renters? These are also things you’ve got to look at.

Cost

Obviously, you need to pick a property you can afford. That much should go without saying. You’ll also need to look at legal fees as well as the costs of a buy-to-let mortgage if it’s relevant.

What are the potential rental yields?

Compare the average rental yields for that sort of property to how much it costs you and then compare that figure with what you could earn with other investments. A good yield for a rental property could be between 5-8%. You’ll also want to look at how much the property could go up in value and how that affects your investment.

What’s the demand in your area?

If people are snapping up second and third homes as investment properties, it might make things more expensive. You’ll also want to look at rental demand as to whether it’s possible to fill your property quickly and easily with someone who’s paying enough to make it a viable investment.

How much work is needed?

Some properties may be ready to rent straight away. Or even better, they might already have tenants in place. But these properties are normally more expensive in the first place. If you’re happy to do a bit of work and wait for tenants, you could make even more from your investment.

What are the legal and tax implications of your investment?

Some areas have different tax rules regarding investment properties, so you’ll need to make sure you know exactly what is relevant to you in your situation. If you’re in the right location, you might want to check out some Australian property tax benefits that you can enjoy for choosing certain homes.