Searching for a property you are planning to rent is quite different to finding a potential dream home.
It’s easy for investors to become emotionally invested as they often become attached to certain features that they feel are necessary to live in the property.
While liveability of a property is still important for potential landlords to consider on behalf of their would-be tenants, there are a range of other factors to consider when walking through an open house to determine if a property is appropriate to become an investment.
Below is our helpful guide to help you to know what to look for and factors to consider when attending an open for inspection for a property.
Choose a property in an appealing location
Choosing the right investment property isn’t just about looking at what features it has on the inside, it is also important to consider the location.
When driving to an open house take note of what facilities are located close by. Nearby schools, shops, cafes and healthcare services are all factors which will appeal to potential tenants.
On entering the street, look at the surrounding houses and yards to determine who might live within the area and whether this fits with the kind of tenants you are hoping to rent to. For example, if you’re hoping to rent to a young family a sign that you’ve found the right area could be play equipment in the yards of surrounding houses.
Another indication of whether a property is suitable could be the condition of the houses nearby. If houses in the street are looking drab and experiencing wear and tear it could be harder to secure a tenant. Safety of the area is a factor for both tenants and landlords, so think about this as you drive up to the property. Insuring a rental property is necessary and if an area is unsafe this could also push up your insurance premiums.
As you pull up outside consider whether the property has street appeal. If it doesn’t entice you to want to look inside, there’s a good chance that it won’t get a potential tenants attention either.
Do your due diligence when inspecting inside
Before you attend an open house, it is worthwhile creating a list of the features you are looking for. As you visit a property tick off the pros and cons and take notes. These can later help you with the decision making process.
Consider the size of the bedrooms and living areas and determine if any are too small. Potential tenants may cross off the property as an option if rooms are too pokey.
Look out for any necessary repairs and maintenance or renovations that might be required straight away before renting out the property. Unless you are prepared to complete a renovation and have the budget to do so, work required may be an additional expense you want to avoid. If you are prepared to do some work, factor these costs in when budgeting what you want to spend when purchasing the property.
If you like a property on first inspection, go back and visit it again at a different time. Take notice of the natural lighting and the way that sunlight enters morning and late afternoon. The direction of the house and whether windows or doors allow sunlight and air flow is important.
Before making any decisions, enlist the assistance of a building inspector, pest inspector and a plumber to check for any structural issues, problem pests or signs of leaking or rusting pipes and gutters.
Finally, ask for a list of what items the previous owner will be removing from the property and what will remain. It’s helpful to determine which assets will be included in the purchase that will later have depreciable value.
Discuss the potential income and expenses with the Real Estate Agent
One of the most important factors to consider when purchasing a property to rent is to discover what income and costs are involved.
The Real Estate Agent selling the property will be able to provide you with an assessment of the potential weekly rent and examples of what similar properties in the surrounding area are currently being rented for.
To get a more comprehensive idea on whether a property will be financially viable, discuss what costs will be involved in holding the property with the Agent. Determine the potential yield you will receive after expenses such as regular repairs and maintenance, property management fees, council rates and interest on are factored in.
Investigating what costs will be involved at the early stages of open inspections can be helpful before you get your heart set on one property in particular.
As a specialist Quantity Surveyor to estimate the depreciation potential of the property
Income and expenses are just part of the picture when working out whether a property is affordable.
Even if you’re only in the early stages of attending open house inspections you can still get an estimate of what depreciation deductions will be available to be claimed for the building structure and the plant and equipment found within the property.
A depreciation estimate is essential as it is important to think about what your cash flow situation will be both before and after tax – vital information that could help make the decision over whether to purchase one property over another.