When talking about investment properties, everyone asks the question: What is a good investment
property and how can I find one? Even though everyone‘s situation is different, there are some common
rules to follow.
- Capital growth vs cash flow
Potential capital growth means the value of a property will increase over time, while cash flow is the cash
in and out of your pocket every day. Ideally, a good investment property can fulfil both, which means
the rental income increases your cash flow while the value of the property goes up during the time
you are holding it.
However, in today’s market, it is not always easy to find such an ideal property, so your choice is
largely depending on your own financial situation and your investment strategy.
If your strategy is to buy and hold to achieve the maximum potential value growth over years, and
your financial situation is satisfying to cover the holding cost, then you should focus on capital growth
when looking for an investment property.
Generally, locations experiencing economic growth or redevelopment under planned will offer more
jobs in the area, hence more demand for dwellings. Also, properties close to such amenities as child
care centres, schools, marketplaces and public transport are in higher demand than others. Higher
demand normally means higher potential capital growth.
If your financial situation doesn’t allow you to afford the cost of holding a property during a long
period or your daily budget is tight, then buying an investment property with high rental yields can
offer you a better cash flow.
There are some areas where rents are high compared to the property value, due to low vacancy
rates or a low number of quality properties in the market. If you focus on cash flow, these properties are
the ones you can look into.
Generally speaking, the properties offer high rental yields tend to hold low capital growth potential,
and vice versa.
- Maintenance costs
The lower cost to maintain a property, the more money remains in your pocket. When looking for an
investment property, try to avoid apartments with high corporate fees, old houses requiring
constant maintenance, or properties with structural defects for instance, as they may drain your wallet
fast.
- Value-adding opportunities
Before buying, do plenty of research to see if there is anything you can do to add some value to the property, for example, the opportunity for redevelopment, renovation, or the potential of dual
occupancy. The more potential a property has, the more value you can add to it hence better
potential growth in future.
Choose a good investment property requires a good strategy in mind, clearly knowing your own
financial situation, lots of research, and a good team around you such as accountants, lawyers and
mortgage brokers. With all of these, it won’t be too hard to find yourself the right property.