Things you should look before buying an investment property in Southwest Sydney.

Buying an investment property in Southwest Sydney can be a great way to generate income and build wealth over time, but getting started can be intimidating. When we use the phrase "investment property," we're referring to a property that you plan to buy and rent out for the purpose of generating income.

If this is your first time venturing into the world of investment properties, then it’s normal to feel a bit overwhelmed by the process. There is a lot to consider, and a lot on the line, too. Whether you’re planning to buy a vacation rental property, a condo in the city to rent out year-round, a commercial investment property, or some other type of real estate investment, you need to go in with a clear head and a strong understanding of what makes a good purchase.

To help you get there, we’ve put together this quick guide to the major factors that you need to consider when buying an investment property. While each situation needs to be considered individually and with local trends in mind, these factors are a good jumping-off point for determining whether it’s a good idea to take the leap.

A Perfect Location

Real estate is all about location. Location is perhaps the greatest determining factor in the affordability, availability and demand for housing. A more desirable location will almost always result in higher prices when compared to similar homes in less desirable locations.

Location is the primary factor that will determine whether a property is a good real estate investment or not. Just because a property is expensive or is in a high-priced area doesn’t mean it will be a profitable investment, though. Conversely, lower-priced properties in more moderately-priced regions aren’t necessarily a sure-fire moneymaker, either. In fact, real estate is so location-specific that one neighborhood of a city could be prime for investment opportunity while another is a place you should stay away from.

Picking the wrong location is likely to be more detrimental to the outcome of your investment than the level of investment you’re making.

So, what is the ideal location for a real estate investment?

The general answer is the location should be desirable to the particular person you’re trying to attract while returning a profit to you at the same time.

Are you looking for a good place to attract seasonal rentals? Search for locations that are close to seasonal-specific features, such as ski resorts, lakes or beaches.

Are you looking to attract year-round rental tenants? Search for locations where it’s generally more affordable for people to rent than buy homes.

Before you dive headfirst into the market, you need to decide what type of real estate investor you want to be, and proceed with that end goal in mind.

No matter what type of tenant you’re looking to attract, though, there are some general tips you can follow when you’re trying to find the best places to buy a real estate investment property.

Analyzing the market

Consider what other properties are available in the immediate area and speak to as many locals and real estate agents as you can – they’ll let you know if one side of a street is considered superior to the other. I always like to let competing agents know that I am looking at another similar property to see what they say, it’s a good trick to get inside information. Make sure you do the leg work and consult professionals you can trust. Accessing independent information from a source such as RP Data can give you information on average rents, property values, demographics and suburb reports.

You can access a lot of information on the Internet but if you want a free RP Data Report, contact us and we’ll be happy to provide you with one free of charge as we subscribe to their services. It is also a good idea to find out what changes may be happening in your suburb and the local council can often help here. For example, a major construction next to your property could make it harder to find a tenant at the right price or a planned by-pass may mean traffic will be reduced and this may increase the value of your property quicker than expected.

Making best renovation to attract best renters

Go for neutral tones and keep the kitchen and bathroom in good condition. You’ll find that you will attract better quality tenants if you have a well-presented property and the last thing you want is a bad tenant.

Another point that is subject to debate is whether you should buy a property that you’d be happy to live in yourself. Some people believe this will mean it is appreciated more and some people don’t care. However, think about differentiating between your own home and your investment to avoid becoming overly involved; remember it is the home of your tenant and not your own.

It is important to remember the day will come when you’ll want to sell the property and if a home is appealing to not only property investors but also owner-occupiers you’ll have a wider market for the property and this will maximize your selling price. I think that owner-occupiers are willing to pay a little more for the right property because it becomes a more emotional rather than a logical purchase.

Down Payment Differences

The down payment requirements when you’re buying an investment property differ from when you’re buying a standard family home. Instead of being able to get away with putting down as low as 1% to 10%, you’ll typically need to put down at least 15% to 20%. Investment properties don’t qualify for mortgage insurance, plus there are stricter approval requirements when it comes to securing your financing, which results in the need for a more substantial down payment.

The variables that determine how much will be expected for your down payment include your credit score, your income, and your debt-to-income (DTI) ratio. As with any real estate purchase, wrap up the details of your financing before going on a property hunt so that you know what’s viable and what’s not.

The 1% Rule

When calculating your expected return on a property, it’s almost always going to be a good idea to abide by the 1% rule. The 1% rule is a real estate investment term that investors use to determine whether a particular purchase is worth making. Under the rule, each month you should be set to bring in no less than 1% of the price you paid for it, including both the purchase price and any additional money you put into it, such as repairs or renovations.

Here’s how this looks: Let’s say you buy an investment property for $425,000 and put in $25,000 worth of renovations for a total initial investment of $450,000. Ideally, you’d want to be pulling in at least 1% of that—so, $4,500—a month in rent or other returns.

Of course, as with all rules, there are caveats. If you’re buying a million-dollar property, for example, or buying a property in an up-and-coming neighborhood that isn’t likely to see strong returns right away, you might choose to shirk the 1% rule and focus long-term instead. In those cases, at least seek to keep your monthly mortgage payment at 1% of your investment or lower so that you’re not paying out significantly more than you’re gaining.

Understand the Risks

As with all things in real estate, buying an investment property is not without its risks. And it’s crucial that you know what these risks are.

Some of the most significant risks to keep in mind:

You might not have the rental interest that you anticipate.
You could end up having to front for expensive repairs.
Property taxes could go up.
The local market economy could change.
You could have bad tenants, resulting in repair costs or even eviction costs.

Don’t focus on the risks alone (if that’s what everyone did, no one would ever buy an investment property), but don’t ignore them either. No investment is ever a guarantee; you just need to make sure you’re not blindsided if something does go wrong and that you have some flexibility worked into your finances.

Looking for a good property manager and let them do their job

A property manager is usually a licensed real estate agent that is a professional in their field, their job is to keep things in order for you and your tenant. They can help you with ongoing advice and help you manage your tenants and get you to get the best possible value from your property, a good agent will let you know when you should review rents and when you shouldn’t.

real estate agent in Ingleburn

Sana Ullah - Licensed Real Estate Agent

The property manager should be able to give you advice on property law, your rights, and responsibilities as a landlord – as well as those of the tenant. They’ll also take care of any maintenance issues, although you should approve all incurred costs (other than certain emergency repairs), in advance.

The property manager will also help you find the right tenant, conduct reference checks, and make sure they pay their rent on time. It is important also that you don’t interfere too much with tenants because there are laws that give them rights, so always try to respect them. You should however make regular independent inspections of your property to make sure that the tenant is looking after your investment but always go through your agent and give plenty of notice.

The Bottom Line

An investment property can be one of the most fruitful purchases that you ever made. Work with an experienced advisor who can help you navigate the process and make the best purchase possible, and be sure to thoroughly evaluate all of the factors above to ensure that the investment you make is a smart one.

Find how much your property has grown in the current real estate market?

Note: This is not a financial advice