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A Guide To Property Investment - Part 2: Choosing An Investment Property

By Coposit

20/12/2023

When it comes to choosing a property to invest in, there are a range of factors that you need to take into account. These include your budget, goals, property market, and the types of properties available to you.

So let's explore an overview of potential options, for both first-time investors and veterans looking to diversify their portfolios.

Choosing an Investment Property

The first step in making the correct choice will be based on research and education. Research can involve understanding national factors that impact the broader real estate market - as well as factors that can affect local markets including lending, population growth, employment, taxation, and state laws.

Education involves looking at individual cities, regions, suburbs, and neighbourhoods - to understand the key metrics in these areas. Doing this research on your own or using an investment property professional is entirely your choice.

How to Choose an Investment Property

To make your investment choice that much easier, let's look at the types of properties you can invest in across Australia.

By Category

Houses -These residential properties usually have better capital growth prospects compared to apartments and villas due to strong demand. They are relatively easy to add value to, especially if it is a brand-new property. The downside is that they require a high level of finance upfront to acquire.
Apartments/Townhouses. These offer higher rental yields compared to houses with no holding costs. However, high strata fees can increase costs, particularly if the complex has large amenities.

By Location

Location is paramount in property investment as it affects; demand, rental yields, and capital growth. It also determines accessibility to local markets, which significantly affects the property value and return on investment potential.

Researching the best location in a strong market climate can ensure sustained profitability and resilience to economic fluctuations, an especially important factor if you intend to lease the property.

By the Size of the Home

The size of a property is crucial as it influences rental marketability, resale value, and maintenance costs. Larger properties may attract families or yield higher rents, while smaller properties often have lower upfront costs and appeal to singles, students, and young couples.

By Your Budget

A well-defined budget is essential in property investment to ensure financial sustainability and prevent overleveraging. It guides investors in choosing properties that offer the best value and potential return on investment without compromising their financial security.

By Market Trends & Analysis

Researching the property market is critical for understanding current trends, assessing the potential for capital appreciation, and identifying risks. It informs investors of the economic health of areas, supply and demand dynamics, rental yields, and the impact of future developments, enabling strategic, data-driven decision-making and maximisation of investment returns.

Determining Your Budget & Goals

The amount of money required to invest in property depends on many factors. This includes the price of the property, your personal finances and borrowing power, as well as, any equity you may already have.

To buy residential property, you typically need a 20% deposit to secure a mortgage. It’s possible to invest with a deposit of less than 20% but you may need to pay the lender’s mortgage insurance (LMI), an additional cost generally added to your total loan amount. You can get into the market quicker at 10% of the current market price or get in with as little as $10k.

As for goals, many property investors focus on increasing wealth, earning passive income, or achieving capital growth. To pick the right property, you need to determine the return on interest.

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