Best Investment Property To Buy

Those who prefer profits in the short term should opt for a strategy that focus on rental yield: essentially the difference between the income the owner receives from rent, minus the costs associated with owning the property, such as rates. The higher the yield, the better.

Those seeking longer term gains should pursue a capital growth strategy, which is the increase in the value of the investment property over time.

Some investors strive to balance out the two benefits by finding a property in a desirable location that is close to cashflow positive or at least neutral, because this means that all the costs of ownership are covered. This means that they are going for a high rental yield, while not sacrificing the benefits of capital growth.

Capital growth

Strong capital growth occurs in areas where demand for properties exceeds supply. This typically happens in established areas near employment hubs with great amenities, public transport and infrastructure, or where there are plans underway to develop it.

“We advise our clients that they should be in the market for a minimum of 15 years, as that will override any market fluctuations,” says Scott Aggett, a property negotiator and the founder of Hello Haus. “It allows the investor to set and forget and let the market do the heavy lifting for you.”

However, properties in highly sought-after locales are more expensive, which means that the amount of rent being paid may not cover the actual cost of owning and maintaining the property. Rising interest rates can make it even more expensive for the investor.

As with any investment decision, it comes down to personal circumstances. For investors looking for a property that will weather market changes with more stability and offer a better long-term investment, purchasing somewhere with good capital growth may be more beneficial.

Rental yield

A property with strong rental yield leaves its owner with cash in the hand, because the rental income is greater than the costs of owning and maintaining the property. And because the long-term outlook for an increase in value is less rosy, these kinds of properties are cheaper to purchase.

For that reason, first-time investment property buyers may pursue this strategy, as it more easily allows them to get their foot on the investment property ladder.

Often these properties are found in regional areas where renting is popular but there is a scarcity of properties available. Or they are found in student enclaves, where there is a high demand for rentals but apartments are on the cheaper end.

Houses and apartments both come with pros and cons.

“For me, the value of a property is in the land, not the improvements you make,” says Aggett. “If you own land, it’s going to outperform an apartment in terms of capital growth, as you only own the airspace inside it.”

Houses also generally provide more privacy and are closer to schools, whereas apartments are usually built close to transport links and shops. However, being within walking distance to shops and amenities will appeal to some, as will the lower maintenance required with an apartment. And this includes, the body corporate.

“Another negative of owning an apartment is that you’re at the mercy of the body corporate in terms of when things get done and how much the costs are,” says Aggett.

“You get only a small voting right in regards to what the building does with the money raised by the levies.”

If the apartments in a block have similar or identical floorplans, if another apartment owner needed to sell their apartment quickly and accepts a low price, it may be difficult for the other owners to receive substantially more. By comparison, each house will be judged on its merits, according to Aggett.

Here are some of the fundamentals to making a solid property investment:

• Location: Close to schools and shops, as well as transport hubs, so it’s attractive to tenants.
• In a well-established area: generally mining towns tend to be speculative boom-or-bust investments. “We look for predominantly owner-occupied suburbs, because owner-occupiers are the ones who drive up the values and drive up the sale prices,” says Aggett. “They also tend to stay there over the long term, which means there is less availability in the area, which drives capital growth.”
• Low maintenance. Aggett steers clear of houses with swimming pools, because if a tenant doesn’t maintain it properly, it will be expensive to fix when they move out.
• In good condition – this allows the investor to start making money from day one, rather than ploughing money into repairs or maintenance. “We are looking for brick homes that are typically single level and very well built. If it is structurally sound and low maintenance, it becomes more of a ‘set and forget property’ that allows the owner to increase the rent as and when they can afford to spend money on simple things like replacing carpet or paint or updating a kitchen or bathroom,” says Aggett.
• Quiet area and ideally off a main road. However, if the location is desirable because it is close to a good school, a family who is renting may consider living there regardless.

If you’re buying an apartment there are some additional factors to consider:

• Small may be better. “I like a small boutique block because you’re not competing with hundreds of owners to use the pool, gymnasium, concierge facilities and other amenities. There are less people, which means there’s typically less noise,” says Aggett.
• Beware of off-the-plan units in large complexes as these are often harder to sell because they are more common. They can also have structural faults and costs can blow out over time. “Off the plan is not without its risks,” says Aggett. “Make sure the developer is well established and has a long track record.”
• Check the body corporate is functioning and not involved in disputes with one another.
• Check how much the body corporate fees will be and if there are any plans to undertake major refurbishment or repair works.
• Think twice about high-rises. “A high-rise building has more owners, and with that comes a higher risk of people not paying their levies and having problematic people in the building,” says Aggett. He also recommends finding a building with mostly owner occupiers, because they are emotionally invested in the upkeep of the building.