How to Ensure Your Investment Property is a Bargain Not a Lemon
When investing in the housing market, everyone is out for a bargain. Of course, you want the biggest return on your investment you can find, but there can be a fine line between nabbing a true bargain and getting hampered with a lemon.
Not everything that’s wrong with a home is evident at first glance. It may be even less apparent to an inexperienced eye. If you’re investing in the housing market, buying a lemon can be a costly mistake. With that in mind, let’s look at how to ensure you make a sound investment.
There are many characteristics that can make a property a potential lemon, but two of the biggest factors are its condition and location. Both of these aspects will affect the success of an investment property enormously – but there are ways to ensure you know what to look out for during your property search.
Buying property is generally the biggest financial decision a person will make in their lifetime. It is for this reason that it is essential to be sure the property really is what it appears to be. A building and pest inspection report is a valuable tool for property investors, as it can help to analyse all aspects of the property and avoid landing a lemon.
There are pros and cons for all locations, but choosing the right one begins with coming to terms with your own personal property investment goals.
DO THE MATH
Always buy an investment property that fits comfortably into your budget. Work out your mortgage repayments and the rental income. There’s no point investing in the housing market and spending more than you’re capable of servicing comfortably. Consider any shortfalls you might need to make up. What will you do if you the property sits vacant for a couple of weeks? Allow for insurance, rates and ongoing repairs. Make sure you budget for all expenses.
You might have heard property investment described as a ‘numbers game’. That’s largely true. Just like any investment, a property’s success will depend on how the numbers stack up.
Getting out of the traditional owner-buyer mindset of judging a property as a home, and instead adopting a performance-based method of assessment, is critical to your success as a property investor. But what type of property data do you need to analyse and where can you access it?
Start with median sale prices, vacancy rates and gross rental yields. Once you can confirm that your desired property succeeds in these areas, dig deeper and look into the area’s demographics and population growth.
- How important is it that the suburb in which I invest has growth drivers such as schools, shops, restaurants, cafes and parks?
- Would I feel more comfortable investing in a suburb I am familiar with or would I think more objectively if I purchase somewhere new to me?
- Is it essential for my investment to be positively geared?
- What is my desired rental yield range?
A wise man once said….”It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” That wise man was Warren Buffett, and if anyone can give investment advice, he can. The same principle applies to buying an investment property. How to choose a good investment property? Make sure it’s a quality property.
Those buyers who focus their attention solely on “bargains” often don’t even notice great properties that may be available at a fair price. And in the end, this focus on the poor quality end of the market will cost them a lot more than what they “save” on the purchase price.
Looking for some help in finding your next investment, give KGR Team a call on 07 3416 0520