5 things to know before buying an investment property

There are a lot of people who’ll tell you that having investment properties is a smart use of money and can create an extremely efficient secondary income stream. However, anyone looking to buy an investment property has to be willing to do their due diligence during the investigative stages, and doing so is doubly important for first-timers. Here are a few things you should know for sure when purchasing your first investment property.

Rental potential

If you’re looking to turn the investment property into a rental, make sure you get an agent or independent company to perform a rental appraisal for you. This will give you a realistic idea of what you could fairly charge per week in rent for the property. If you plan to go through an agency, you should try using sites like localagentfinder.com.au to find the best balance of real estate agent commission and letting fees to maximise your returns.

How much it is worth

The price a property sold for and what it’s actually worth are rarely the same number. Take the time to have the property evaluated by a certified, independent valuer to assess its actual total value. You can then use that information to negotiate on price. Consider anything you’ll have to do to the place once you’ve purchased it, including any potential renovations, repairs, alterations, and additions.

How the local market looks

Activity in the surrounding areas can have an immediate impact – positive or negative – on the local property market. The best way to find out about this is to get amongst it yourself. Find out if gentrification is something that has already occurred or might in the future. You should also be taking the time to trawl through statistics on your chosen area; look at the historical crime rate and rate of employment, for example. Any local demographic information will be extremely useful in gauging market trends.

Competition in the area

One of the most important things that this research will tell you is whether or not the local market is currently saturated with investors. That’s the last thing you want because it’s going to severely diminish your ability to generate fruitful rental returns. One thing you should definitely be doing as part of your research is to contact the local council. They’ll be able to tell you how many homes in your area are owner-occupied.

Returns vs gains

You should also be considering your options; are you going to pursue rental returns or capital gains? Most investors would tell you to focus on the latter because, while rental income is going to help you hang onto the property, it definitely isn’t going to help you buy another investment property. You should be focused on capital gains in the early stages because this could lead to equity for a second and third property faster than chasing high rental return.

These are just five of the things you should be considering prior to buying your first investment property. Keep them in mind when doing your research and you’ll be generating that sweet secondary income stream in no time.