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Finding the right investment property – for you – takes time and requires research, good judgment and a plan. While there’s no magic bullet, The Successful Investor’s Michael Sloan outlines five sound principles to help you choose wisely.
Give me the main points
- Understand cash flow. Be realistic and don’t count on best-case scenarios.
- Beware the ‘hidden agenda’ – the investment property that seems too good to be true.
- Do your research. Tenants in different places might want different types of property.
- A reliable and on-to-it property manager is worth every cent.
- Do more research. Understand the area you’re buying into.
You’ll have heard the saying ‘Fail to plan… and you plan to fail’? Finding the right investment property requires a plan. A strategy. Start by asking:
- What kind of property do you want to buy?
- Whereabouts are you going to look?
- What sort of cash flow suits you?
- What’s your budget?
Unfortunately many investors don’t have a fully-formed plan when they start house-hunting. They’ll have an idea—of course—but they haven’t worked things through. Not fully, not thoroughly.
Use these five tips to find the right investment property for you.
1. Understand cash flow
Easily the biggest mistake made by investors is not getting cash flow. Not working through the numbers. Buying a negatively geared property is fine so long as you know the cash flow before you buy, not after.
Read Understand cash flow before you buy an investment property to find out more.
2. Beware the hidden agenda
There are many property investing strategies. Despite the confidence and bluster of various ‘gurus’, no way is 100% right or wrong. So beware property spruikers who say their way’s the only way to invest. And beware homespun ‘wisdom’ that’s part myth, part fact, part wishful thinking.
You may have heard these investing ‘truths’:
- Only buy within seven kilometres of a capital CBD.
- Only buy house and land.
- Never buy house and land.
- Only buy apartments.
- Never buy apartments.
- Only buy negatively geared properties.
- Only buy positive cash flow properties.
- Only buy properties you can renovate.
- Buy low value properties in country locations.
- Buy art deco properties in upmarket locations.
Some commentators repeat these maxims because they believe them, but others because they want to sell these very properties. Look out for them.
3. Don’t second guess the market
Let the market be your guide. Speak to at least three local property managers about what type of property is in demand locally. Make sure your potential property suits the local market.
And don’t take advice from anyone who works with the selling agent. They’re working for the vendor (and that’s fair enough). Once more, beware the hidden agenda.
4. Choose a specialist property manager
Here are my top three tips on how to choose a property manager that’s right for you.
- Look at their current advertised listings. How good are the descriptions? Are they nicely-written? (ie. personalised to the property, upbeat but not awash with hyperbole). How many photos have they posted? Is it a feature listing that’s easily found? Would you be satisfied if this was your property?
- Ask them to send you info on their services—and then judge them on how quickly they respond, and how professional that material is.
- How many properties do they manage? With support staff they can effectively manage more than 150 properties each. But if they’re on their own, then look for an agent who manages around 100. Not more.
5. Do more research!
My top six things you should research for every investment property.
- Jobs. What’s the employment situation like in the area?
- Schools. Check out your local schools.
- Shops. Is all you need nearby? Shops of character and charm (not too many $2 shops).
- Transport. Decent public transport (ideally). And proximity to motorways.
- Recreation. Lots of parks. And walks of serenity.
- Lastly—and most critically—is it the right property for the area?
The information in this article has been written by Michael Sloan from The Successful Investor. While Mr Sloan has been careful to ensure the information is correct and accurate, Mr Sloan’s views are his own and do not necessarily represent those of National Australia Bank Limited ABN 12 004 044 937, AFSL and Australian Credit Licence 230686 (NAB). This information should not be relied upon as financial product advice as none of the information provided takes into account your personal objectives, financial situation or needs. NAB recommends seek the counsel of an independent financial advisor before making any investment decision.