Criteria for Investment Property
One of the best ways to invest money is to put it in investment property. While investing in property continues to be a popular choice of investing with a goal to make money, a simple mistake while making the decision might cost you a fortune. As such mistakes can be expensive, it is always best to take a strategic approach with clear goals that put forward the result you are seeking.
In order to make a purposeful money decision, it is necessary to properly understand the fundamentals of supply and demand. Before choosing your next investment property, examine the numbers and analyze the data. This will put you ten years ahead and while looking back, make a whole lot of difference.
When evaluating an investment property, one must consider four broad categories. Based on the location, market drivers, and individual property, the criteria for determining investment property are assessed. Here are the top criteria based on these factors.
Investing in a property is all finding a perfectly positioned property that ensures the delivery of the best capital growth and yield. The most well-positioned dwelling has a better prospect for growth with the right demographics. Both homeowners and occupiers have a high demand for places with such physical appeal. The areas with a previous history of consistent capital growth show signs of the “Ripple Effect.” The surrounding areas around the major suburbs are initially cheaper. These areas later deliver a growth rate of over 7% ensuring a proper return on the property asset.
The affordability of certain areas determines the future growth in price. Due to the ripple effect, it is known that the suburbs currently at low price points with major amenities and lifestyle features and situated near major cities are more likely to perform better in the future. The affordability of a certain area is relative to the average income of inhabitants of that area. The price to income ratio measures affordability. The cheapest suburb is not the ultimate pick but instead is dependent on income and demographic. However, do keep in mind that the affordable area of the property market is less prone to wild market fluctuations.
3. Rental flow and Rental Vacancy
The rental yield determines the rental cash flow one can expect from an investment property. This rental yield is the key indicator. As per your borrowing position, a rental yield of 2-3% higher than the loan rate results in positive cash flow on your investment property. The decrease in rental yield indicates that the property price in the suburb is rising with a possibility of oversupply of rental accommodation. On the other hand, the increase in rental yield suggests a shortage of rental space and a drop in property price.
To make a correct investment property choice, you should consider properties with high tenant appeal and easily accessible living amenities around the area. You can also increase the rent by adding a few features such as secure car space or internal laundry and even as simple as storage space. In a tight rental market, the rental price can be increased by the addition of a furniture market.
The rental vacancy rate also determines the rise in rent in that particular area. Areas with low rental vacancy indicate the high demand for rental space thus resulting in the hike in rent.
4. Demographic and Proximity to Amenities
Demographics and amenities around the property play a vital role in determining a perfect investment property. Even though the demand for houses increases with the increase in population, property prices do not always rise automatically. The number of existing houses in the area affects the rise in property prices. The price increases with an increase in population only if there are a limited number of accommodations in the area.
A large influx of works due to infrastructure or mining projects increases rental demand. Not only the population but the demographic of professionals living in the area also plays a vital role in the rental price. Professionals with double income and no kids tend to have higher disposable income than the minimum wage workers and retirees. To buy an investment property, avoiding the areas with a higher proportion of retirees is important as they have limited income.
Areas with major amenities in close proximity are in high demand. In the long run, such areas tend to outperform in the property market. Being able to walk to the bus or train station or even grab a local coffee nearby is a huge plus point. The presence of supermarkets, schools, parks, and recreation facilities nearby can add value to the rental price making people want to buy and live in the area thus paying off better for the investment in the property market.
Consider these four criteria before making a decision. As investing in the wrong property can be expensive, considering all the factors affecting the property market can put you years ahead and a wholesome return on your investment. We can assist you in making the right choice. Contact us now and let our Nepali mortgage brokers help you in buying an investment property in Australia.