Factors to consider before buying an investment property

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Become a landlord with the right property investment

Buying an investment property and becoming a landlord is something that can be hugely lucrative, providing you with ongoing income for years to come and leaving you with something of real value once you have paid the mortgage off on the property.

Of course, as is the case with any long term financial investment, you need to ensure that you do some research before choosing to buy an investment property. You'll be faced with a number of important decisions during your property investment journey, and making the right decisions can make all the difference between a good and bad investment.

Important considerations when buying an investment property to become a landlord

It is important to look at a number of important considerations when you are thinking of property investment as a landlord. Buying a property to rent out to tenants is different than buying a property as an owner-occupier. You need to look at the property as a business venture. Some of the considerations that you need to bear in mind when it comes to finding the right property for your investment include:

  • The initial cost of the property: Whether you are paying cash or borrowing to buy an investment property, you need to ensure that the property fits within your budget. Make sure you work out a realistic budget and stick to it.
  • The property's target market: New research from Mortgage Choice revealed that two-thirds of property investors already have an ideal tenant in mind when they begin their property search. You need to work out who your target tenants will be. For example, some landlords prefer to rent to singles or professional couples whereas others will consider students or families with children. The features of the property you buy should be influenced by the ideal tenant you'd like to live there. If you want to rent to a professional single or couple, a one bedroom apartment might be ideal. If you want to rent to groups of students or families you will need to look at a larger house.
  • The area in which you buy: The area you buy in should be in-demand and fit the target demographic you'd like your property to appeal to. It should also have the potential to generate long-term capital gains. While your short- to medium-term goal is to have the property tenanted, your long-term goal will be to sell the property for a profit. Research buying and selling trends as well as rental vacancy rates to find an area that can help you achieve both of these goals.
  • The upkeep of the property:  In order to maximise your profit, you'll want to choose a property that requires as little maintenance and ongoing repair as possible. Look for hard-wearing, low maintenance flooring. Ensure the roof and foundations are in good repair. Look at the conditions of the fittings and the state of kitchen and bathroom facilities to ensure that they are in good condition.
  • The rental returns: You'll need to balance asking rent that is high enough to help cover the mortgage payments and ongoing costs associated with owning the property with rent that is reasonable enough to remain competitive. Research properties in the area of similar size, with similar features to get an idea of a fair market rent.
  • The management of the property: You'll need to decide whether you want to manage the property yourself or enlist the aid of a property management company. While a property management company will mean additional costs, having a buffer between you and your tenants may save you time and stress in the long run.

Taking all of these factors into consideration will help to ensure that you end up with an investment property that will generate good rental returns over the short to medium term and healthy capital gains over the long term. Remember, you want to keep untenanted periods to a minimum, so buying a good, well-maintained property in a decent area can pay dividends in time even if it requires a slightly higher initial investment.

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Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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