How to determine a good investment
Look at location
When looking for an investment property, location is key. If the location is chosen carefully, the rental income could be far greater than a property in an undesirable area far from amenities. Think about close proximity to public transport and schools, parks, medical facilities and libraries, shopping centres, cafés, restaurants, beaches and other lifestyle amenities. Selecting a property close to day-to-day needs will increase rental and capital gains potential. Investment properties, particularly houses, in major cities or central business districts that combine suburban lifestyles with practicality and ease of access to employment are extremely desirable and highly sought after. Due to their desirable nature, many established suburbs can attract a high price tag, so, if you wish to save money, look for emerging suburbs or localities with a strong potential for capital growth.
It is also important to consider the supply and demand of the property market in a particular area. A sensible place to put your money is in a suburb that is experiencing, or is predicted to experience, an increase in population. As infrastructure and amenities increase, so does its desirability and thus, the rental income of your property.
Do the maths
Investing in property is a tried and tested method of attaining long-term wealth. To ensure reaping the financial benefits of your investment property long after you have purchased it, it is important to calculate costs.
Banks generally only consider 80 per cent of the predicted rental income on your investment when determining whether or not you are able to afford the repayments on a loan. This is because of various costs associated with tenanting a property, such as agent’s fees, vacancy rates and the cost of putting your property on the rental market. Furthermore, before investing in any property, it is important to be aware of the ‘hidden’ costs associated with owning a rental property that many people tend to forget about initially. These include stamp duty, capital gains tax and land tax.
Once you have purchased your investment property and it is tenanted, it can be fairly manageable for you to keep up repayments on your mortgage, as well as other expenses associated with owning a rental property, as you will be earning rent on a weekly basis. Remember that over time, particularly if you buy a property in an area of high growth potential, the price of your property will increase and, as such, so will your rent and therefore your income.
