How to find the best investment property

Wednesday, 21st Sep 2016

property searchWhen buying an investment property, many people will focus solely on their price point without considering other factors. However, it’s important to look at the bigger picture to help find the best investment property.

While price does usually dictate the type of property an investor will buy, to find the best investment properties that suit each individual’s circumstances other factors need to be considered.

This is because no two investors are ever the same and, therefore, an investment property that is the best option for one person, may not necessarily be the best option for someone else.

So what do investors need to be aware of other than price point to help ensure they find the best investment property for them?

Cash flow (holding costs)

  • Depending on your income and spending, the cash flow that a property generates (or the required holding costs) will have a big impact on your investment journey. If you have little discretionary income, the best investment property for you may be a more modern dwelling that can command higher rent, rather than an older aging property that may need to be leased at a lower price to secure a tenant.

Risk profile

  • Are you risk-averse or are you comfortable with risk? This will have a big influence on the type of property you buy. For example, if you’re risk-averse you may prefer to spend less and buy a townhouse rather than a more expensive standalone dwelling, or acquire a property in a blue-chip suburb rather than an up-and-coming area. On the other hand, if you’re comfortable with risk you may buy a development site or a property in a proposed rezoning area, which can provide higher returns but may carry more risk.

Life circumstances

  • A property might suit you now, but what about in 3, 5 or 10 years’ time? You might have plans to buy a property to develop in the near future, and while you might be able to finance the property under your current circumstances, what if your circumstances change? You may have children, get married or need to buy a larger home, which may impact your ability to fund a development.

In addition to these factors, investors also need to bear in mind any additional costs required for a property immediately after purchase. A property may need new carpet or a fresh coat of paint in order to be in good leasing condition. Investors that haven’t factored in such costs may find themselves in a tight financial situation.

While buying an investment property might seem straightforward, in reality different properties suit different investors.

By only focusing on the price point and failing to consider these other factors, investors are more likely to buy a property that’s mismatched to their individual situation.

This can lead to inadequate returns, unnecessary financial pressure or worse, investors failing to meet their investment goals or give up altogether.

Creating a property investment plan that considers such factors helps investors recognise their needs and requirements and allows them to identify the best investment properties for their circumstances.