Do your due diligence before buying an investment property
Everyone has their own opinion in terms of what to consider when it comes to purchasing property as an investment. While there are no "right and wrong" criteria when it comes to choosing a suitable property, here are my views on what to look out for when considering residential property in particular.
- Lettability and achievable rent: You'd want to be sure that the property will appeal to an adequately sized market and whether the achievable rent would translate into a sound investment for yourself. Examples of considerations for prospective tenants are:
- Proximity to places of work (i.e. a commercial hub), especially if traffic is a consideration in your city.
- Some tenants will be considering your property's proximity to public transport.
- A lot of tenants will have adequate and secure parking on their "must have list".
- Most tenants want shops, schools and other infrastructure relatively nearby.
- The appeal of your particular property and the development or area it is in, will be something prospective tenants compare when looking to rent.
If you are looking to rent your property short-term, make sure to check any rules that may be in place at the scheme you're looking to purchase in, to ensure short-term letting is allowed.
- Expenses, both current and future: Before putting in an offer, you'd want to check what the property's expenses are (for example the levies for a property in a community scheme). You'd also want to have an idea of where the expenses might go in the future. In a community scheme context, by having sight of the latest budget you should get an idea.
- Likely required upgrades: You'll need to consider any required refurbishment or maintenance within your specific property. If a kitchen will soon need re-doing, for example, you'll want to factor this expense in before making a purchase.
- Best guess for capital appreciation: When purchasing as an investment, you'll not only be interested in the monthly rental return, but also the potential for capital appreciation. Consider the following:
- Is the area you're purchasing in undergoing improvements/upgrades?
- Are there planned developments nearby? In some instances, nearby developments will have a positive effect on the value of your property (for example a new shopping centre may be what an area has needed for years and something that will now add value), while others may have a negative impact (for example a large new development full of competing residential properties may result in an over-supply and reduce your property's value).
- Have property values been inflated in the market you're purchasing in (i.e. where in the "property cycle" are you purchasing)?
- Strength of property management: Again, in the context of a community scheme, your purchasing decision may be influenced by the strength of the management, not only from a managing agent perspective, but also from the perspective of the trustees in office. A well-run scheme would usually have a professional managing agent and trustees that take their role seriously and work well together.
- Financial position of the Body Corporate/Home Owners' Association if applicable: If you are purchasing in a community scheme, it is always recommended that you ask for a copy of the latest financials so that you understand the financial position of the scheme you're buying into.
- BC/HOA plans for the future: Ask for a copy of the latest AGM minutes so that you're privy to any significant plans in the pipeline. For example, you'll want to know about a planned lift replacement before you buy into the scheme, especially if you suspect a special levy will be required to be raised in the near future.
Author: Teresa Hamilton