Finding the right property to compliment your investment strategy can feel like a chore if you don’t know where to start. While there is no one-size-fits-all approach, there are a few factors that should always be considered when choosing an investment property. To help you get started, we’ve created a go-to guide:
1. Choose a location with your head, not your heart
Location is key and it pays to choose with your head, not your heart. You want your investment property to be consistently occupied and to offer strong rental yield so do your research.
Explore the area and take note of any major attractions like universities and shopping centres. Look into the immigration rate and recent population growth in the area. Consider the employment rate and any major industries within the location. All of these factors should play a part in your investment strategy.
Remember that successful investment locations aren’t always in major metropolitan areas so be sure to look far and wide when searching for a property. You may have to look outside of your own neighbourhood or even interstate. If you are purchasing property in another state or territory, it’s also important to be aware of the relevant rules regarding stamp duty.
2. Is there strong market demand?
A good investment location has strong demand. Look to vacancy rates for guidance as these figures offer insight into the success or decline of the rental market. Low vacancy rates usually indicate good investment prospects and stable tenancy. High vacancy rates can force landlords to reduce rent to attract tenants, which is detrimental to your investment strategy.
A simple Google search can also help to determine whether there is an oversupply or undersupply of rental properties. An unusually high number of rental listings can indicate a seasonal change or a suburb in decline.
3. What’s the average rental return?
Rental income will be your bread and butter so get familiar with the rental rates in your area. The average rental return is an important metric used to understand your likely cash flow. It can help you determine whether a property is likely to be positively or negatively geared, allowing you to make informed decisions based on your financial situation.
You can easily estimate your rental return by using PropCalc, the essential cash flow calculator. PropCalc is a convenient online calculator revolutionising property research by using key market analysis and customisable data to show exactly how a purchase will affect your financial position. The tool will estimate your rental return and determine whether the investment will be negatively or positively geared based on your personal scenario.
4. Are there plenty of amenities nearby?
Schools, hospitals, shopping centres, transport, restaurants and cafes. Having local amenities near an investment property will make it more attractive to tenants and can even help to improve the property’s value over time. It may cost you more, but it will be worth it in the long run.
5. Be informed about council plans and development projects
Council plans and developments offer insight into the supply and demand of an area and can help you determine any factors that could impact your investment strategy in the coming months or years.
For example, if there is a large housing estate in the works, this may negatively impact your investment as market demand changes. On the other hand, development to improve existing infrastructure such as transport options can have a positive influence.
Savvy investors can refer to the relevant local council to research any upcoming projects, building regulations and developments in the pipeline. Alternatively, you can find details on MyBMT, an online portal designed to help you and your investment team access and manage your depreciation needs.
Using the Research and Insights tool within MyBMT, you can discover properties recently listed for sale or rent, view Census data and keep abreast of planning applications near a property.
The interactive platform also gives you on-the-go access to depreciation information, insurance quotes, valuable market analysis and helpful property tools. To find out more, visit mybmt.bmtqs.com.au.
6. Know your target demographic
It’s crucial to understand your target market. Ask yourself, will the tenants be university students, young families, professionals or the elderly? Do they own one or more cars that may require a garage? What is their likely employment? How much are they likely to earn? These factors can help you determine the appropriate property for your investment strategy.
7. Find a property that is low maintenance
Look for an investment property that is low maintenance and ready to lease immediately. This will reduce the period of unoccupancy and lower your holding costs sooner.
For example, a property with a pool, large backyard and elaborate gardens may look appealing but will require regular upkeep. In comparison, a neat and tidy unit with a paved outdoor area needs very little maintenance.
8. Ensure the property is a reputable build
You can nail the location, market demand and demographic, but if your property is riddled with structural issues it could end up costing you more than you bargained for. To avoid any unwanted problems, ensure your property has a reputable build and always get a building report completed before purchase.
A building inspector should examine the entire property, both interior and exterior, to identify any existing issues and compile a report detailing the condition of the property, from cosmetic issues to major structural damage. This may include structural movement, roof damage, water penetration, rising damp and mould issues.
9. Properly assess the holding costs
Once you’ve conducted thorough market research and found a potential investment property, it’s time to assess the associated holding costs.
Savvy buyers can calculate this cost with PropCalc. More than just a mortgage calculator, the tool allows users to personalise data such as purchase costs, potential property income, annual expenses and tax deductions, producing cash flow results for specific scenarios customised by you.
10. Understand your tax entitlements
There are several taxation benefits for owners of income-producing property. While most property investors know to claim deductions like interest, property management fees and council rates, many are unaware of their depreciation entitlements.
If you know the depreciable value of a property before buying, you can better plan your income and expenses to create a successful investment strategy.
Depreciation is the natural wear and tear that occurs to a building and its assets over time. Legislation allows the owners of any income-producing property to claim this wear and tear as a tax deduction each financial year.
Depreciation relating to the building’s structure can be claimed as a capital works deduction. As a general rule, owners of residential homes in which construction commenced after the 15 September 1987 and commercial properties in which construction commenced after 20 July 1982 are eligible to claim capital works deductions.
Plant and equipment assets refer to the easily removable fixtures and fittings within the building such as hot water systems, carpets and blinds. Deductions for these assets are based on the condition, quality and individual effective life of each item as set by the Australian Taxation Office.
It’s always worth contacting a specialist Quantity Surveyor to discuss the depreciation potential of any investment property you own or are planning to purchase. BMT Tax Depreciation provides free estimates of the likely depreciation deductions available once a property is income-producing. To find out more, visit bmtqs.com.au/tax-depreciation-estimates.
Seek expert advice
BMT Tax Depreciation can provide a comprehensive tax depreciation schedule outlining the deductions investors are eligible to claim when completing their annual income tax return.
A BMT Tax Depreciation Schedule lasts the lifetime of the property (forty years) and will ensure you claim your depreciation entitlements correctly. Our schedule had a one-off cost and is also 100 per cent tax deductible.
For more information on depreciation deductions, Request A Quote or speak with one of the expert team at BMT Tax Depreciation on 1300 728 726.