To understand if an investment property is right for you, you’ll need to think about a few different things.
Market performance, location, property types… these are all important, as are your goals, what you’re hoping to achieve, personal risk tolerance, and who you want to sell or lease to later.
Ready to get out there and start evaluating properties? Keep this list of seven assessment criteria with you for reference.
1. Your personal investment goals
What do you want to achieve with this investment? What are you hoping to get out of it?
This is your first step for assessing any property because it’ll help you frame everything you see in the right context for your personal goals.
Some questions to ask yourself:
- Are you investing for capital gains?
- Are you investing to generate passive income?
- Are you investing to redevelop a block into something new?
Knowing your goals will also help you understand who you’ll be selling to (or renting to) later, which in turn will make it easier to identify what you like or dislike while you’re assessing properties.
For more specific financial advice personalised to your goals, consider talking with a financial advisor.
2. Your borrowing power
Your borrowing power restricts what you can afford, so this comes next.
Think about how much you can put down as a deposit, or whether you can use any existing property as security.
But remember, what you can borrow is only half the battle. The other half is what you’re comfortable repaying. Keep in mind your monthly income, and what you can afford in repayments. You may find that you’re allowed to borrow up to a certain amount, but you can’t comfortably repay it. So, you’d borrow less to ease that strain.
- Pro tip: Investing has risks, and nothing is guaranteed. For example, you can buy for passive rental income, but that won’t mean you’ll always have tenants. A financial advisor can help you navigate these risks before making any major purchase decisions.
3. Location
Location is hugely important in real estate. It affects a property’s desirability for tenants or buyers, and it is a major factor in the property’s growth prospects.
While assessing properties in your area, consider these factors:
- Current and predicted population growth.
- Recent sales performance of similar properties.
- Current vacancy rates and rental yields.
- Zoning or other property restrictions.
- Current or upcoming public infrastructure or redevelopment projects.
- Proximity to community amenities, such as schools, shops, sporting facilities and green spaces.
- Proximity to public transport, motorways etc.
Put together, these factors can tell you how well an area is performing from a sales or rental point of view, and what might happen in the coming year. You’ll also spot great neighbourhoods with access to the conveniences of life, which should make it easier to sell or lease the property in future.
Learn more: Top benefits of leasing property in the Sutherland Shire
4. Type of property, and its features
When you’ve grasped what you want to achieve with your property investment, and who you intend to sell or lease it to later, finding ideal properties should be a breeze.
In Australia, there are a few common investment property types:
- Houses
- Units/apartments
- Townhouses
- Duplexes/triplexes
- Student or holiday accommodation
- Commercial property
- Land
Think about potential tenants again. Families are going to want space, bathrooms and probably a decent-sized garden. Long-term renters typically want low maintenance and convenient access to their work or favourite amenities. Commercial tenants need good foot traffic, main road exposure or parking for example .
While assessing properties, always keep in mind who they’re for and it’ll help you pick the perfect investment.
Learn more: Investment property types compared: Pros and cons of each
5. Age and condition
Location is important, but a property’s age or condition will also impact its value and suitability for buyers or tenants.
For example, an older property might require more maintenance than a newer one, or it may come with higher insurance premiums. Though, the trade-off is typically a lower purchase price.
Additionally, you may be able to claim certain tax deductions on the depreciation of capital works or plant and equipment in a newer home, producing tax benefits.
Once again, we’d advise you to seek professional financial advice (and the advice of a quantity surveyor, if investigating depreciable assets), to ensure you best understand how an investment property might impact your cash flow.
6. Projected capital gains or rental yields
We mentioned capital gains and rental yields earlier – now let’s dig into them a bit more.
- Capital gains refers to the profit you would earn from selling a property for more than you bought it.
- Rental yield refers to the annual income you could expect to generate from leasing the property, expressed as a percentage of its total value.
While you can never truly predict the future (and past performance does not indicate future performance) you can still use the past sales performance of similar properties within a neighbourhood, combined with research into predicted population growth and new development projects, to guess how well an investment might perform in the coming years.
Investing to sell? Look for growth in the property market, and different ways to increase the value of your property (such as adding solar or EV charging).
Investing to rent? A combination of high rental yields and low vacancy rates in an area could indicate a strong rental market.
To chat about a particular property or area within the Sutherland Shire, contact our team and we’ll help you out.
7. Risk appetite
Your final criterion for assessing a property is your own risk appetite, that is, the amount of risk you’re willing to take on to get a good return on your investment. Again, this will be where you turn to advisors for personalised advice – a financial advisor for the budget side, and we can help you with the property side.
Common investment property risks include:
- Market crash, flattening or sinking prices.
- Fluctuating interest rates.
- Risk of vacancy, i.e. your property has no tenants.
- Poor-quality tenants, i.e. your tenants damage the property or don’t pay.
- Natural disasters, i.e. flooding or bush fires.
- Other environmental risks, like termites, mould or erosion.
- Risk of undesirable new developments, i.e. a noisy motorway nearby.
- Neighbourhood goes into decline, no growth.
- Law change, such as tenancy laws or zoning changes.
- Budget blow-out, i.e. you spend more than expected on the property.
Research and due diligence are critical to understanding these risks and figuring out which ones are relevant to your investment property. Consider getting a building inspection done before signing any deals.
Need help assessing investment properties? Hire the experts
Here at MattBlak, we’re the experts when it comes to property investment in the Sutherland Shire. This is our home, so we know what buyers and tenants alike look for when moving to this area. Combined with our many years of experience buying, selling and leasing, we’re your ideal partners for finding an investment in this part of Sydney.
Our team will help you sort through your options and find properties to suit your investment goals. Get in touch with our team and let’s talk about your needs.