The one thing all investment property hunters are looking for is a high earning rental property, both in yield and growth.
No matter what you are looking for when you are shopping for an investment property, the ultimate desire is to have a profitable return.
What new investors often don’t realise is that chasing hot trends can lead to chasing your financial tail.
The way to succeed in property investment is twofold; you need to maintain a suitable yield, (at a minimum so costs are covered) and you should expect a great return from the eventual sale.
Both of these are imperative and investors need to do the groundwork before a purchase to ensure that the chase for one of these profitable goals doesn’t eclipse and sabotage the other. While one or the other might look viable at the outset, over time, a hit on either one will negate any increase in revenue, cause stress, and flip a professional purchase to an emotional one.
When it comes to high yield, the most notable way to achieve this is purchasing property in a highly favourable location. Great location assists with high rental prices and low vacancy periods. A word of caution here, great location doesn’t always mean buying in the hottest zones.
While some locations may experience times of rapid growth, investment buyers need to be aware that a rapid trend can just as quickly recede, leaving you high and dry. A hot spot is usually an indication that a region has reached its peak. If caught unawares an investor may find their expenses outweigh the rental income and be forced to sell again quickly, with little or negative gain on the assets.
If a property is yielding enough income to cover costs but there is little indication of long-term growth, there is not much point in holding onto it and continuing to maintain and nurture that investment if there are no benefits when they really count.
On the flip side of the coin, if your rental property has a low yield through fast turn over, long vacancy or pressure to have lower than desired rental prices, you enter a danger zone of being out of pocket and falling behind in maintenance and refurbishments. If your rental property is not able to compete with new entries on the market due to lack of quality fittings or a poorly kept interior, you will find yourself facing a downward spiral of low returns.
It becomes essential then that your purchase provides both an ongoing sustainable yield and future growth potential. To get a handle on how to best utilise your asset you will need to get familiar with your rights and allowances with Australian depreciation and capital expenses. While you cannot access these deductions immediately, they can be highly beneficial over time and will help keep your property to a high standard which is the upward spiral of improving or maintaining a high yield.
Finding the next property hot zone is the key to making a solid investment. Suburbs that are currently trending as hot zones will probably make your new investment purchase price high, limiting potential future growth.
The best place to start your search is outer regions, still within public transport range, which can have exceptional performance and double their worth over a few decades.
To know if an outer area is preparing for rapid population growth look at plans for infrastructure, signs that they are moving to become more independent and self-contained with an increase in employment opportunities and income (greater than 3% rise).
With the right investment, you can sit back and relax, letting time take a pleasant positive stroll through your bank account.
With property sales going haywire in Australia through 2021 and prices soaring to record-breaking highs, it’s important to know where you stand on price and how much flexibility you have to negotiate. Knowing where you stand means you won’t overpay, which is especially important in a hot market where panic can set in.
This is our final post in this particular series. In this blog, we are focusing on the highs and lows, so you know what you're getting yourself into. This information does refer to some facts from the previous two posts, so get back and read our Renovation planning guide and the types of renovations to get up to speed on how all these ties together.
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