What to look for when buying an investment property
So, you're in the market for an investment property. Time to start browsing real estate sites and searching your area for the best looking, highest renting, cheapest property that you would happily live in. Easy as that, right?
Buying an investment property is completely different from buying a home. Homes are driven by the heart while investment should be driven by the head.
Property investment or investment property?
While many think of it as property investment, successful investors think investment property so they see it as money boxes in the shape of a house.
Too many investors focus on the property alone and wonder why it doesn't work. But this is an elite team sport and a game of finance, where it is all about the numbers. Successful investors focus on the proven principles, process and the right people before even thinking about the property.
Investment properties aren't about looking for pretty - you need to look for potential.
This means reframing your mindset and outlook - you need to develop a clear vision of the future. Visualise the property in one or two decades' time, and don't be too distracted by how it looks today.
And this is about much more than just the bricks and mortar of the property.
History consistently shows that 80% of property price growth comes from the location and only 20% from the property itself.
The seven rules of scarcity
To find success as a property investor look to the seven Ss of scarcity:
Are you looking for price growth or income? Growth is about homes on land, cash flow is about units and apartments - if your savings nest egg is below what you need, then you need to focus on growth.
How much can you afford to buy?
This is not just about your borrowing capacity or savings/equity deposit, it is also about ongoing cash flow affordability - an investment-savvy finance broker and property strategist will model this for you.
Synchronise your property purchase power with the current highest potential growth location around Australia that is at the start of an upward price cycle (house price 'S' curve movements differ for every area). Adopt a national instead of neighbourhood approach, by focusing on steps 4 and 5.
Not only are you scanning the country for properties in restricted supply and high demand lifestyle locations, you need to target areas with strong and growing incomes. Look for regions with committed new jobs and infrastructure spend.
Narrow in on suburbs as close as possible to the CBD, employment hubs or water, supported by residents with high income growth. Make sure the area is dominated by at least 70% home owners and not too many renters.
Employment should also be spread across multiple industries, which means that regional resources-only towns are out!
Within suburbs you can identify attractive streets with appeal, which should also have the best proximity to public transport, schools, lifestyle amenities and shopping. Drive down selected streets during the early evening to get a real feel for who lives in the area, what cars they drive and what the neighbours are like.
The property is the final step. Talk to the best property manager in the area and get an honest opinion about the size, profile, look and types of homes that are in greatest demand by renters and buyers.
Aim for a low maintenance property, with a backyard big enough for a trampoline and an area for kids and a dog to play. And don't be put off by properties with outdated styling -this can easily and cheaply be updated with as little as a coat of paint.
It is time to transition your thinking from home owner to savvy investor. A simple shift in mindset will take you from stress to success with property.