What to consider when choosing an investment property

Buying an investment property is an exciting opportunity to start or build an investment portfolio.

We’ve put together some strategies and factors to start considering.

Capital growth

For many, buying an investment property involves a long-term strategy to make a capital gain.

In short, this means selling the property for a profit.

Most property markets experience cycles so it’s typically best to buy a property when it’s at the bottom of a cycle and then hold onto it for long enough that you can make a capital gain.

The increase in the value of the property over time is called capital growth.

Cash flow

When buying an investment property, investors typically decide on a cash flow strategy. One strategy is purchasing a positively geared property meaning the money you receive from your rental is more than the costs to keep it e.g. mortgage repayments, council rates and maintenance.

On the other hand, some property investors prefer a strategy that involves negative gearing, meaning your rental return is less than your expenses. Why would someone want to make a loss you might be thinking? Negative gearing means you might be able to make tax deductions on your income. So, depending on your situation, you may prefer this option instead.

There are pros and cons to both strategies, so make sure you do your research.

Property market

When finding an investment property, gauge the property market to understand the property and rental prices in each suburb and how they have changed over time.

There are various factors that affect the housing market including the economy, consumer confidence, interest rates and employment levels.

Property type

Another important part of buying an investment property is knowing what property type you’re looking for.

Is it a house, apartment, or even a holiday home you’re looking to rent out on Airbnb?

Each property type comes with different ongoing costs so it’s important to be aware of these from the outset.

In addition, keep in mind what features renters might be looking for, for example, parking availability, number of bathrooms, heating/cooling etc.

Location

Location is one of the key factors to consider when purchasing a property, particularly as an investment.

There are many features that make a location desirable however this depends on each buyer/renter and their particular situation.

For example, if you’re looking at buying an apartment that caters to a younger demographic, you may consider proximity to the city, universities and/or local amenities such as cafes. If you’re catering to young families, then you could consider school zones, public transport availability and local amenities such as shopping centres and parks.