Simon Buckingham’s top 10 things to look for in an investment property
By Property Observer
Tuesday, 22 October 2013
Director and RESULTS coach of RESULTS Mentoring, Simon Buckingham, shared with Property Observer the top 10 things which he looks for in an investment property.
1. A property that is aligned with your financial goals.
First and foremost, you need to know what financial outcome you’re seeking from your property investment – i.e. how much profit, by when, and what form is that profit going to take (capital growth, cash flow, a lump sum cash gain from adding value, etc)? It’s only with a clear financial goal in mind that you’ll be able to assess whether a property is actually the right one for you!
2. Established (not brand new) house in a growth area.
New houses depreciate, which can provide some tax advantages, but you’ll pay a premium for ‘new’ and may not see any greater rate of growth than you would with a less expensive established house in the same area.
3. Priced lower than comparable properties in the area.
Becoming familiar with values in and area by researching recent comparable sales can help you identify properties where the price represents good value – subject to checking out whether there is some kind of major issue with the property. Remember though that many problems can be fixed cost-effectively, and it may be that the seller simply needs a quick sale and is quite negotiable on price.
4. A house on a larger block in a zone that would allow higher density development.
This may make your property more desirable to developers, helping it to outperform on price growth even if you have no intention to develop it yourself.
5. Other ‘scarcity’ aspects.
Look for something that will make your property rare (but not weird) and therefore more desirable than others in the area, so that it outperforms on price growth and/or rental returns, rather than getting more-or-less the same as any other property. Examples of ‘scarcity’ aspects might include a larger block in a high density area, water views, proximity to amenities (like beaches, parks, sports grounds), being close to public transport or easy freeway access (but not right on the railway line or right next to the freeway), etc.
6. Opportunities to cost-effectively add value or increase rent.
The more options you have for making money from an investment property, the better. If you can add value to the property, then you become less reliant on market-driven growth for you profits. Look for properties with potential to increase the value or achieve a significant improvement in rental return through cost-effective improvements. Here, ‘cost-effective’ means that you’d spend less on the improvements than the resulting increase in the property’s value, or would be paid back the cost of the improvements within a short timeframe from the increased rent.
7. More than one dwelling on the same title.
A property with more than one house or unit on the same title may deliver a higher rental return from multiple tenancies, or provide an opportunity to actively increase the value of the property through a potential subdivision.
8. Located in an area with favourable ‘market dynamics’.
Not all suburbs are equal, and they won’t all experience growth at the same time. Look in areas where the leading indicators of growth are positive. For instance, a suburb where there’s limited housing supply and properties are being sold at a rate faster than the rate at which new listings are being added, the average-time-to-sell is falling, may indicate great potential for short-term price growth.
9. Located in area with low rental vacancy rates.
If you’re planning to hold the property for rental income and price growth, then picking a property in an area with strong rental demand will be important. Low vacancy rates will support both rents and prices, and help reduce the risk of having to carry the property empty (with no income) for extended periods between tenants.
10. Broad target market appeal.
Ensure the property will appeal to your ‘target market’. If you’re planning to rent out the property, then it needs to be a property that tenants will actually want to live in. If your plan is to on-sell the property down the track (perhaps after renovation or redevelopment) then look for locations and properties that will have broad appeal to the majority of home buyers and investors in the area.