Australian property prices are looking like they’re trending upwards again, so it’s no surprise the investor market is slowly beginning to wake from its slumber. But are rising property prices the only factor to consider when hunting for that perfect investment opportunity? When it comes to making a successful property investment, there are several factors that could influence your chances of earning long-term gains. Here are some of the key questions to ask yourself before making your offer.
What exactly is driving the market?
Sure – property prices may be on the up but be certain about whether this is being driven by a short-term over-inflation that may lead to future correction, or more sustainable growth factors. On the other hand, a recent drop in prices might not necessarily indicate a lack of investment potential if it’s simply a blip in the market rather than a sign of something more fundamental or irreversible.
Examples of long-term factors may include increased building in an area which might lead to oversupply and diminishing property values, while substantial economic development such as a new airport may permanently raise local home values. Meanwhile, the impacts of high interest rates and waning buyer confidence is unlikely to stick around forever.
Location and yield
You might not have an emotional connection to the suburb you’re considering buying in – it may not even suit your own personality and lifestyle – but it’s important to be sure that your desired tenant will be an attractive area. Whether or not the property is within walkable distance to amenities, near job opportunities, or a transport hub with easy connections to other major centers are all factors that could influence the decisions of your target tenant profile.
Quality of the property
The key question is, if you wouldn’t live in the property in its current state, then a tenant probably wouldn’t either. Unless you’re planning to invest in renovations, whether the property is of the required standard to meet the expectations of renters in the area will be an important factor in how long it takes to secure a tenant, if at all.
The quality of the property will also have an impact on what it will cost to maintain the property, so you should always look past the shiny façade to consider the lifespan and durability you can expect of its fixtures and fittings.
Are you likely to secure a fair deal?
The quality and standard of a property, and its location, are core factors in determining the viability of an investment property but be aware of the risks of getting emotionally involved in the purchase. For example, if you find yourself attending an auction for a unique property on the market, you might be at risk of competing with emotional buyers who are prepared to pay a higher price to secure the property of their dreams. Of course, anything you pay over and above the market will detract from your overall capital gains in future.
Property features and practicalities
The property you’re considering may have ticks in all boxes when it comes to quality and location, but you should always scratch below the surface and imagine what it would actually be like to live there – because there may be a few hidden deal breakers for prospective tenants. For example, a newly renovated property in minimalist style might present an appealing lifestyle but be totally impractical for families who value storage and amenity. At the same time, layout factors such as disproportionately small living spaces compared to bedrooms and oddly located functional areas or disconnected outside spaces could also have an impact on how easy it’ll be to secure the right tenant.