6 Steps To Choosing Your First Investment Property
What Is A Prime Property For Investment?
Whilst there are many ways of defining a prime property, it is usually a well constructed newly built property in a convenient, safe and environmentally pleasant location, with good facilities and a high asset value. You should also look out for a low risk of vacancies or declining rental value. An attractive property offers a stable return because it is easy to find tenants, which generates a consistent stream of rental income.
There is no profit in a value-for-money property for an investor who cannot find tenants. Prospective tenants are attracted to properties that are already in demand, so it is crucial that an investor ascertains the level of demand when selecting a property for investment.
Demand rests upon the nature of a building and its location. Prospective tenants place a high value on, for example, whether a property is in a convenient location close to a busy station. When it comes to blocks of flats built to attract the singleton and childless couple market, good transport links are important in attracting tenants. In the case of larger flats and single-family houses aimed at the family market, important factors include a tranquil and pleasant environment for raising children, even if this means being a little further away from a station.
Investors also need to look at whether the architectural structure, amenities, age, room layout, external appearance and size of a property are attractive to prospective tenants, and whether or not there is a good trade-off between these characteristics and the rental charge.
When you find a property you like you need to act quickly before someone else gets in ahead of you, but there is a knack to selecting a good property.
Act Quickly Once You Find A Good Property
You need to act fast to prevent a prime property getting away from you. But, as they say: act in haste, repent at leisure. If you need to finance your purchase with a loan, you can gauge the amount you need to borrow by consulting a loan provider in advance. Also, you can gain access to information ahead of other investors if you speak to real estate agents about what kind of property you are looking for. Be sure to visit a good property early once you have identified it.
Make A Realistic Assessment Of Rental Market Value, Don’t Be Swayed By The Price Tag
A property with a price below the market rate might look like a good buy, but there is usually a reason why the price is low. Or, it could be a property a real estate agent is using as bait to attract customers. Conversely, a property that is overpriced is a big risk even if it can be expected to generate a good revenue stream. You need to understand the rental market and choose a property on which you can expect a high return.
Check Out The Local Area
You also need to assess the rental market in the surrounding area and the nature of the local environment. You can estimate the likely volume of prospective tenants by investigating the population flow into and out of the area, and the change in the number of households. It is important that you choose the property that best suits the local demographic – is the area popular with younger people, or more suited to families?
Consider The Investment Property Data
It is a challenge to find something that meets all the conditions for being a prime property. This is what all investors are desperate to find, and the reality is that it is hard to get your hands on information about such properties. It is important always to have your antennae out for a good property, and you should place the emphasis on the following points in sifting through property information.
Anticipated rental value and the factors underpinning it
Investment property information includes the anticipated rental value and the anticipated annual income this will generate. There is no problem with this if the anticipated rental value is the current rental value and if the building is more-or-less fully occupied, but you need to be wary if there is a high level of vacancies or if there is no basis for the state anticipated rental value.
You also need to take care when it comes to the factors underpinning the anticipated rental value. Take, for example, a high anticipated rental value predicated on the existence of a large commercial facility in the area. There is a substantial risk that the rental value of the property would fall if that large commercial facility disappeared. It is, therefore, generally best to avoid a property whose high rental value is predicated on a single factor. You need to have a thorough understanding of the rental value that generates income when making an investment in property.
Confirm every minute detail yourself
You must check out every last detail of the property yourself, including whether it receives the sunlight, what the views are like and the nature of the local environment. The rental value of different properties located the same distance from the same station can differ depending on such things as how much sun they receive. Primary sources of information can only give you a rough idea of the neighbourhood, so you must visit and ascertain these things yourself.
Read also: Guide to REITs Investing In Singapore
Avoid Property Investment Pitfalls
Property investments tend to fail when the investor cannot put themselves in prospective tenants’ shoes. One way of trying to avoid this pitfall is to choose an investment property you would be happy to live in yourself, but relying on this alone can result in failure.
For example, when choosing an investment property on this basis, you are likely to focus on such things as proximity to a station, a south-facing property and a pleasing outlook. But, different prospective tenants have different concerns – a tenant who is not at home during the day may not be that interested in whether the property receives a lot of sunlight, whilst another who travels by car or bicycle may not use the station. Also, whilst the investor buys a building, tenants live there only for a short time, and many may be prepared to put up with less than optimum conditions if the rent is cheap.
If you are fixated on owning a superior property and apply very high standards when it comes to buying an investment property, you are likely to end up choosing a high-class property with a high rental value to match. This entails the risk that it will be harder to find tenants. You need to remember not to become fixated on finding the perfect building for you when you are buying as an an investor.
Take An All-Round View In Property Selection
When choosing an investment property you need to consider the property from a number of different perspectives. As well as building relationships with real estate agents so that you don’t miss out on information about prime properties, you need to keep your own ear constantly to the ground.