Essential Research Tips When Purchasing an Investment Property

Whether you are looking to buy your first investment property or adding to your existing property portfolio it can be easy to rush into things and overlook the finer and possibly more important details. There is more to buying an investment property than just the price; this blog will teach you the importance of research.

When looking to buy the next property the first thing you need to do is research, research, research. Research is  important for everything from the location of the property to the quality of the property and even down to the type of tenant you will target. With great research the good and the bad can all be uncovered and at the end of the day it can mean the difference of tens of thousands of dollars in savings.

Location Growth

When it comes to researching the location the key is to understand why the value will increase in the future and what will drive the demand for the location. You need to ask; what’s unique about the location? Why do people want to continue to build there, move there, live there and grow families there?

You must understand what the drivers are, as the flip side is if you choose a location on the fringes of a city, or in greenfield areas where there are hundreds or even thousands of acres of land that can be developed, you may find your self in a situation where the growth doesn’t match the supply and this can send you sideways or a few steps backwards in property value.

Ideally you would buy in an area that is under supplied with excess demand or where there is investment in infrastructure. Any area where there is investment in transport, roads and highways, shops, schools and hospitals is going to attract people to an area. These factors help drive population growth, they help drive rents up and they help to drive demand for your property. Investing in an area that lacks in growth is going to affect your future cash flow as you will be unable to raise rents.

Population Growth

When it comes to the population growth, find out what recent trends are. If there is no population growth then the property value won’t rise, if the population is declining or has flat lined then you will have vacancy rate issues. Check for investment in infrastructure in the area, this will also have a flow on effect on the quality of the area, which will include better transport systems, road improvements, more schools, local shops and healthcare facilities.

With growth of the population also comes growth of employment and growth of household income. This information is easy to find through websites such as the Australian Bureau of Statistics, here you can see the statistics for population growth, employment growth and the average household income growth in every suburb. This will give you an insight into what the best areas are to invest in.

Its also important to analyse long term growth patterns; have property prices gone up or down in the last 5 to 10 and even 20 years? This will give you an idea of where the area is heading. If you are buying in cities with growing populations such as Sydney or Melbourne, then you are going to have more people competing for the same CBD area, the same city fringe suburbs and the same coastal areas. So those values will rise over time and in many cases with coastal properties they rise at two to three times the market average purely because of the excess demand for the same limited geographic space.

It is the same for NSW waterfront property where 100 years ago you would have been competing with around a million people, now adays you are now competing with seven million for the same coastline. Therefore, those unique factors about location will help drive long-term performance and help drive up values over time.

Your Target Market

Its important to research whom you are going to target and it can be wise to target the broadest group possible so that you will have limited vacancies. For example if you’re investing in a well-established area where you are likely to have much older or even retired tenants, buying properties that have stairs or steep land and steep driveways may limit your ability to attract tenants, as older people prefer properties that are one level with flat driveways.

If you are targeting young families then it is important to make sure that the property is fully fenced to keep children and pets off the road. Fencing has become a big factor, as it also provides a feeling of security. Simple things like having only showers and no baths in a property will discourage most young parents as it is impractical to raise children without the convenience of a bath.

When targeting young people such as students, teenagers and working couples, don’t buy properties that have a heavy amount of garden and lawn maintenance, as this will put them of your property. By understanding who your tenants are, how much time they have, what age they are or even what lifestyle they live, will help you identify their key drivers for selecting a property that meets their needs and these are important factors that should not be underestimated.

Type of Property

Its important to think about the age of the property and although you may be able to get a great deal when investing in an older property, there are a couple of things to be aware of. Older properties are always going to need more maintenance and repairs as things start to wear out such as roofing, plumbing, electrical wiring, carpets and paint. Moisture can start to get into all sorts of places where it shouldn’t be.

As there will also be less depreciation to claim on an older property it can be a good idea to get a property inspection before you sign on the dotted line to avoid unforeseen repairs and headaches. The opposite of this is of course a much newer property, which may be pricier but will have more depreciation to claim from a taxation point of view. In a newer property, particularly in the first five to seven years there should be lower levels of repairs and maintenance, which is going to help you create much better cash flow.

The last thing to remember is that property is a long term game that gives you the ability to increase your wealth over time, so its important to research and then research again, so you can make wise decisions on investment opportunities. Some of the key factors are going to come down to where the property is located, the demand and growth in the area and if there are infrastructure projects that will drive demand in the area. Its important to always keep in mind what your target market is looking for and to know their key drivers for selecting a property.

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