If you are planning to invest in rental property, there is a certain amount of due diligence that you should do. These are the top 10 property investment questions and the answers to them. It is always good to have as much possible background information before you get involved with investing into a property.
What is happening with the local area real estate market?
Whatever is happening in the local property market in the area where you are purchasing whether it is negative or positive, is going to affect your property. One way to determine this is to go and see for yourself. Get out to the local retail area and see what types of retailers are there and what the standard is of the products that they are selling. You can also get an idea of the type of people that live in the town and if wealthy people have arrived there or are about to arrive. Do some research into the crime rate of the area, the local demographics and what is driving the employment in the area. You can get some of this information on the Australian Bureau of Statistics’ site located at www.abs.gov.au
How Much Work will it Take to Get the Property Ready for Rental?
Your potential rental property should be ready to be rented when you purchase it. If you purchase a property that needs renovations, then this can delay the time you have to get the property on the market. This will translate into a cut into your profits. Allowing for some paint work and simple finishing is reasonable, but structural improvements are costly and take a long time to complete. This may lead to you losing up to a month of rent without even having any tenants in place. Make sure the entire property is low maintenance so that you are not spending all your time and money managing the property.
What is the Potential for Rental Return?
An agent can tell you what they believe the rental potential is but that does not mean that is what the property will rent for. Look for yourself on property rental portals in the local area to get a flavour of what the local rents are like so you will know what your potential return is on the property. You can also engage an independent company to complete a rental appraisal for you.
Are you Going to get Stuck with Capital Gains or Rental Return?
One serious consideration is whether you will be getting rental returns or must deal with capital gains if you have many investments. Rental income helps you to hold the property, but it is not going to help you with the purchase of another property. Capital gain is something you need to consider in the early times of your investment because it can help you to purchase a second or even a third property. High rental returns and low capital growth will cause you to sit on a property for too long before you eventually get the equity to be able to reinvest.
Is There a Lot of Competition?
If your market is full of investors, then your chances of having success with rental returns is much lower. This can cause problems around capital appreciation. Investors need to get in touch with local council to find out what the ratio is of owner-occupied homes and rental properties.
What is the Property Worth?
The selling price of a property is not always accurate. If you are seriously considering an investment in a property, then you should complete a property valuation too. A property valuation can cost around $350, and it will provide you with the actual worth of the property which you can use to negotiate a purchase price.
What is the State of Accounts?
If you are purchasing a property that is on strata plan then there is a monthly maintenance charge which is deposited into a fund which is used by the strata to pay for maintenance of the property such as new carpet, keeping the grounds and elevator maintenance. You have the legal right to view the disclosure which should provide you with an outline of what has been collected, what has been spent and what projects are planned for completion in the future.
What is Included with the Title Search?
You should not assume that all is included in the sale of the property. It is up to you to identify what is included such as storage, parking spots and fixtures. Developers do not always update things, and this can affect your contract and cause you to lose a lot of money. You can ask the contractor for the Community Management Statement which should show you how many cars parking spots there are and the amount of storage available per unit. You should then ensure that your solicitor has included these in the Contract before you finalize anything.
What is Being Built Nearby?
This can have an affect on your property value, particularly if there is industrial property planned nearby or low-income housing. You can get a look at the local area plan through city council office and get a better idea of what the layout of the area is that you plan to buy in.
Do you Know Your Target Market?
You will need to identify who your potential tenants are and have an understanding on what they are looking for in a rental property. For example, if you plan to purchase a property in a town that has a university or college nearby, you should invest in a property that has room for multiple occupants so you can maximize your rental return. If your target market is a family, you want a larger home with many bedrooms and a big yard for the children and pets. The proximity of shopping should also be considered.
Consider all these important questions before you sign a contract. Do all the important research prior to making a commitment to your purchase of a property. It is up to you to do your due diligence before you are saddled with a property that will not give you the returns that you are expecting.