The New Breed of Tenant

Choosing an investment property is a completely different prospect to choosing a home. A home is an emotional purchase based on any number of individual imperatives. An investment property, on the other hand, is simply a commercial prospect. So it’s a matter of dropping your lifestyle hat and donning your financial cap when prioritising your criteria. First and foremost, an investment property should be tenant friendly, meaning it should be close to amenities such as schools, shops and transport, close to cities and major employers. It should be in a region with a diverse industry and employer base and appropriate to the demographic profile of its location. For example, near a university with many students, a unit might be more appropriate. Also, avoid features such as swimming pools and air conditioning as these tend to break down creating unnecessary expenses.
The next step is to narrow down the search to properties that meet your specific financial needs so you will need to consider:

the type of property you are interested in, target areas for investment, demographic benchmarks and price (it is important to set a price range that makes reselling easy). Once you have set your search parameters, the search for an investment property can begin in earnest.

Research is the best protection you have against buying a lemon and this includes researching the demographics and future of the area, land availability, median property values and residential vacancy rates, rental returns, strata title issues and if you are buying off the plan, try and check the developer’s credentials.

Last but not least, you need to conduct cash flow calculations to make sure the property is a viable investment for your portfolio. Things to consider include depreciation allowances, tax deductions, interest repayments, purchasing costs, ongoing costs and whether you can afford it if the investment performs below expectation.

Written By : Sarah Mills Source : Money November 2008