The choice between various Investment property requires different considerations for investors than for an Owner Occupier buying their own home.
To attract good tenants, the majority of conditions will still be similar as for the Owner Occupier. An investment property, however, does not need to suit the specific requirements of an individual family with their needs. For example, does not need to be near the purchaser's workplace, or their children's school. In fact, an investment property can be situated anywhere within the State or Country and is restricted only by the Investors comfort zone.
Financial circumstances is the prime driver behind the Investors ultimate decision.
Economic considerations are not just about which property they can afford, but also the type and location of dwelling that will have the most impact for the money they spend. "A bang for their buck."
First, investors need to look at the return that is required to make the purchase viable and to ensure the repayments are manageable. Like any investment, it is not only the return ON your money, but also, most importantly, OF your money.
The ultimate return in property investment is capital growth - the rise of the value of your property. However, an investor must be able to afford to hold the property while it acquires this growth. As it can be challenging to find a property that promises good capital growth while showing high rental returns, there must be a trade-off.
An Investor should know the limit their financial institution is willing to lend, and also the ceiling of their purchase price after costs. It may be prudent to set the purchasing sights lower to allow for unforeseen expenses.
Let us now take a scenario of an Investor who has the capability of purchasing to a total price of $550,000.
The four categories of investment property
Dual Living - Includes Duplexes, Dual Occupancy, and Dual Keys
House and Land
Townhouses and Terrace Houses
Apartments and Units
Each of these styles has a typical base price and a commonly found location. So, as a quick estimate, we can ascertain what type of each property would cost for each of the areas. And that is where the choices begin.
$550,000 would purchase a highly cashflow positive Dual Occupancy showing high returns on the outskirts of a CBD, but will typically show a lower capital growth due to the location. As it is cashflow positive, it can help fund other negatively geared investments that are in capital growth areas but without the return.
$550,000 would purchase a House and Land in the outer suburbs of a CBD, or, occasionally, in an in-fill area of an established suburb. Rent returns would typically make these purchases cashflow negative/neutral, but with a higher capital growth than a dual living.
A townhouse close to a CBD could be bought for $550,000, showing good capital growth, but average rental returns. Holding costs are typically more expensive for these types of properties as they tend to be strata titled. These costs could be up to $100 per week.
Finally, Apartments. These are the staple fare of inner-city CBD living. Here prices depend not only on how many bedrooms, but also on the views, floor level, and amenities. Holding costs for Apartments are higher due to the facilities such as pools and gymnasiums, and even the elevators. Short-term letting / Airbnb can increase rent returns, however only if permitted by the Body Corporate, and this is a risky strategy. Typically the resale prices of Apartments are the first to suffer in any housing down-turn.
Below we have broken the main investment property categories into four sections, each with their page with further, more in-depth information.
TIPP are here to help
The common vein for all investors is that new constructions have distinct advantages. They attract the maximum tax advantage possible for depreciation of the building and fittings and have little or no maintenance issues for the first five years. As most tenants prefer to live in a new home, it is easier to attract a better quality tenant at the highest rent. New dwellings also tend to suffer less vacancy than perhaps an older property.
Higher Rental Yield
Typically showing a neutral to positive cashflow return, these easily affordable investments are perfect for any portfolio.