Six strategies for smart property investors
31 August 2015
1. Be in it for the long-term
You need to be an expert to ‘buy low’ and ‘sell high’. This takes a lot of time and is hard to achieve if you have a burgeoning career and a young family. Most successful property investors keep their properties long enough that it doesn’t matter when they sell – they will still make a good capital gain.
2. Buy for capital growth not just rental return
Capital growth is the most important consideration when buying an investment property. Capital growth will increase your equity more quickly than high rents – although of course you have to do your sums and know that you can service the loan. Research annual median values and track recent sales to identify high growth areas. Look for streets or areas where there is a broad appeal and the necessary amenities such as transport.
3. Keep yourself informed
While most property investors don’t want to spend hours of their time researching market trends and nor do they need to if they are holding their property long term (see 1. above), it’s important to research your property purchase carefully and keep a close eye on market trends. Keep up-to-date with on interest rates, the economic climate, government policy, demographic trends (who is living in the area and why) and local developments.
4. Inner city is best
Capital cities are the ideal place to buy an investment property because they usually have consistent demand from real estate consumers - buyers and tenants. In any city, the inner city suburbs usually produce the most sustainable long-term capital growth and they produce it faster than other areas particularly because most of the available land in the inner city is fully developed so the supply of residential property almost never keeps up with the demand
5. Add value
If possible, buy a property that can be inexpensively improved. This immediately makes a property worth more to a tenant than it did when you bought it. Improvements such as a fresh coat of paint (off-white) and new carpet (neutral) can add value to your investment and increase your rental returns. But be careful not to take on anything major that will reduce your income (i.e. stop you renting it out for a long period) especially as works may not be tax-deductible until you have produced an income from the property.
6. Remember that location is bigger than size
Never be tempted to buy a property just because it looks good or is new or large or any other desirable feature – unless the location is also good. This means the area must have amenities such as schools, public transport, shopping areas and leisure and entertainment options such as public parks, cafes, restaurants and cinemas.
Keep an eye on any formerly unloved areas where first home buyers have started to move in. They often seek out areas where the value is lower than a neighbouring suburb but the amenities are as good or potentially as good. The fact that first home buyers are likely to improve their homes and the local area could mean good capital gain down the track.