Investing in property has long been a favourite and trusted way for many Australians to increase their wealth and secure a stable financial future. It is, however, important to note that not all property investments are guaranteed to be profitable and there are many factors to consider which will determine the success of your venture.
To help ensure the profitability of your next investment you should research and get to know which type of property will suit your goals and budget best. Here are five of the most important things to consider before you build an investment property.
1. Target market
One of your first priorities should be to get to know your target tenants as they’ll have a big influence on the type of property you should build and the best location for it. Families with children may prefer larger homes in leafy suburbs close to good schools and recreational facilities, while young couples or professional singles may be looking for smaller units or apartments which are easy to maintain and close to their workplaces, public transport, and popular cafés and shopping areas. Get to know your target tenants by speaking with local property managers, researching local sentiment surrounding the area in suburb reviews and the demographics of the area online.
Find a block of land in an area with good potential to grow in value in the coming years. Ask yourself whether it’ll be easy to find quality tenants in the area and what your return of investment will be if you sell the property in the near future or in a few years’ time. Popular areas usually have easy access to the city through public transport or main roads, low crime rates, parks, and a range of amenities, medical facilities and shops located nearby. Also look out for potential future growth by identifying new developments, shopping centre upgrades and new business or transport infrastructures in the works.
Once you have determined which target market will suit your location best, or vice versa, you should build the ideal home for them. Smaller units like duplexes and triplexes often attract younger couples or singles that are looking for convenient and easily maintained homes rather than space and other luxuries. Larger apartments and homes are more suited for longer-term renters who plan to settle in an area with their families. Their ideal homes are more spacious, with enough living areas, bedrooms and bathrooms, lock-up garages and a backyard. Keep these factors in mind when you decide on the design of your property. Also aim for a design with longevity – choose something that is stylish but functional and modern with classic features that won’t become outdated very quickly.
4. The property market
The property market changes constantly, and an investment property type or location that may have been lucrative a few years ago, may not be your best option today. Before you start building, aim to understand the current market dynamics. Talk to an agent or research online to find out about the average rents, property values and growth, suburb demographics, and the surrounding properties you’ll be competing with. Look at vacancy rates, renter versus owner occupier rates, rental yield and capital growth rates.
Your dream may be to invest in a large scale property investment from the start, but the reality is that you should only build what you can afford. Many property investors start off with smaller projects, such as developing their existing property with a house behind house or duplex development and then take on bigger investment opportunities once they have more experience and capital available.
The thought of making the right investment property choice may seem daunting, but it shouldn’t be. We recommend seeking out the assistance of an experienced agent, financial advisor or property developer to put you on the right track.