What makes a good investment property?
Last month I received some great questions in my 'Ask Mark' series on Property Ventures’ Facebook page (propertyventuresnz). One of them was a very important "back to basics" question: What factors do you take into account to consider a property to be good for investment?
It is a great question, and even though I have already briefly answered it on the Facebook page, it is worth writing a more detailed blog on the topic. The answer falls into the two categories below. 1. Location
Location, location, location! We hear it all the time, but what does it mean?
- What is going on in this location? What is the local council doing? Is the government investing money and resources into the area? If your answer is yes to these questions, it should be a safe bet that property in this area will show capital growth in the future.
• Public transport
- Is the property close to bus stops, train stations and other public transport systems?
- This is important, especially if there are schools nearby which are considered 'sought after'. A home's price can be several hundred thousand dollars lower if the property is near a good school, but not zoned for it and instead zoned for a “less desirable” school zone.
• Development potential
- The more you can do to the property (renovate, add rooms, or subdivide), the more your investment will be worth at a later time and the more rent you will be able to achieve.
• Rental demand -
If you are planning to rent this property, you will need to check and understand the demand for rentals in the area. I suggest talking to several property managers, not just one. 2. Obstacles that may affect selling or renting a property out in the future
If you are looking to purchase a property to hold it long term, thinking about when you'll be selling it will most likely be the last thing on your mind. But let me be clear about this one! Whether you buy to renovate, keep it long term for capital gains or to get a good rental return
, you should always be aware of the obstacles that may affect the property's price in the future, as well as whether good tenants will want to rent it.
• Train lines
near or at the back of the property - potential noise or danger for children.
near or at the back of the property - same as the above.
Is there a large apartment building
or a Housing NZ complex
being built next door or on the same road? Will it affect the price of your property?
• Bad reputation - r
esearch to ensure that the street hasn't been in the news for the wrong reasons. Visit Mr Google.
Is there an airport
nearby? The noise can put buyers and renters off. Remember, the airport would have been there for a long time, so it's likely that it won't be going anywhere.
• Power lines
running over or close to the property – a potential buyer or tenant will normally look at another property unless they are price driven.
All of these points can affect the price and number of potential buyers or tenants in the future, which in turn should affect your buying decision in the first place. It will not matter how well you renovate or how many additional rooms you put in it; the above factors may still affect the price negatively.
I'm not saying never buy a property with the above, but be smart about what you're paying for it. Also, be aware that you will have a more limited pool of buyers or tenants than you normally would. It's like monolithic clad buildings; they will also sell, and there will be buyers, but a limited number of them. Fewer buyers equal less competition, which equals less price. It's just the way it is.