How to choose the right neighbourhood for an investment property
Whether you are starting out and looking to invest in property or you already own property and looking to add to your portfolio, property remains the best long-term investments if you can subsidise the cost through rental income. There are a few critical factors to consider though when making these purchase decisions in order to ensure you achieve the best return on investment (ROI).
Neighbourhood is probably the KEY FACTOR both buyers and tenants consider in terms of investment or area of choice to rent. Consulting a qualified Property Practitioner in your short-listed areas to ascertain insights into what tenants are looking for, occupation rates in the area the average rental prices will give you a good base to make an informed decision. For this reason, most of our Area Specialists cover both Sales and Rentals so they see a property investment from both perspectives.
So the big question, What do you consider when evaluating a neighbourhood for a property investment:
- Overall quality of the neighbourhood: Consider the investment the local council, HomeOwners Association invests into the overall appearance and upkeep of the area, as well as any security factors which are a huge drawcard as the demand for security living becomes more and more in demand.
- Vacancies and Demand: We briefly mentioned this in the opener, but getting a Property Practitioner to provide a report on current vacancies and occupation rates of rentals in the area will establish the level of demand for the area in terms of a rental market. Is it an attractive rental market and will your property retain tenants at a good return of investment in terms of rental income?
- Rental vs. Cost of property: Consider the expenses linked to the type of property you are looking to invest in, whether it is freehold or sectional title, costs incurred will include loan repayments (if applicable), capital investment in the form of deposit or cash payment, property rates and taxes, levies and general maintenance of the property. These expenses should not outweigh your potential earnings on the property to make it a sound long term investment. Factors to consider if you are purchasing a cash property is the current interest you receive in the investment vs. the growth rate of property in the potential area you looking to invest in, coupled with the monthly profit due to rental income.
- Resident Demographic: Thinking of your ideal tenant profile assists in establishing the ideal property. If you looking to attract families, a property with a garden may be best suited, not the modern townhouse in a busy road with a vibrant nightlife.
- Crime rate: Probably one of the most considered factors for both buyers and tenants alike is the consideration of crime rates in a prospective area. Things to consider are vandalism, burglary and other crimes. If you are purchasing in a complex or Security Estate, ask the questions on how often security measures are re-evaluated and updated, check that constant re-investment into these measures is made or consider the area’s neighbourhood watch, security patrols etc… to ascertain the perceived level of security within the area you are looking to make a considerable investment in.
- Amenities and Schools: Consider the amenities such as shopping centres, medical facilities, well-maintained parks in close proximity to your prospective property. If the property you looking to purchase is targeted at the family demographic, also consider what the closest schools are in the area, as good schools attract higher rental income potential as a drawcard on demand.
- Features and fittings: A rental property is not required to have the top-end finishes, however consider the functional and easy to clean aspect of areas such as kitchens and bathrooms, as these are drawcards for both buyers and tenants alike. There needs to be a level of appeal in these areas within a home.
Hayley Bird our Principal Agent and Owner has walked many investment journeys with clients over the past 17 years and one fact remains, in order to maximise your ROI on a property investment, you need to be committed in the medium to long term (at least 5-8 years) in order to reach the maximum growth potential for an area which shows growth prospects. Working with a Property Practitioner who specialises in an area and handles both rentals and sales holds benefit for you as the investor, as all perspectives are considered in the purchase process.
STAY POSTED on our socials as next to follow our Wednesday Wisdom as next we will EXPLORE THE GOOD AND THE BAD ABOUT PURCHASING INVESTMENT PROPERTY IN A COMPANY TRUST VS. YOUR PERSONAL CAPACITY! So much has change, this one will be worth the read! Until next time.
Yours in All things Property,