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As we’ve always said, you don’t have to be a genius to master property investing. All you really need is a bit of tenacity and a comprehensive plan designed to fit your individual needs and goals.
To help you along, I’d like to share the following 10-point checklist for buying an existing property. This tool is used by our acquisitions department when we research opportunities for our clients and has proven immensely helpful in finding great buy and hold properties.
#1 – Buy a new – or at least a recently renovated property – to maximise depreciation/tax return and gross rental returns.
Find a new property to gain the maximum in depreciation/tax return benefits or an existing property in need of some cosmetic renovations such as a fresh coat of paint, new carpet, light fittings, and blinds.
You’re looking to add value and gain from either a rental return or an increase in the capital value of the property – sometimes both!
#2 – Choose a small or multi-staged development (under 50 dwellings).
Look at small developments, particularly if they’re strata titled properties, with less than 50 dwellings. An exception would be if the development offered added benefit to the community, (e.g., structure has a historical or cultural background) making it a desirable location for owner occupiers.
#3 – Look for a strong location. “Infill” areas are highly favoured.
Location is very important. Look for second hand properties in areas where there is already a strong, existing infrastructure that is well established. These areas aren’t sprawling or out in the boonies, but they are located in infill areas with already established communities.
#4 – Find a property in an area presenting with more than five pillars of economic support, including; demographic, rental demand, high employment and wages growth.
This is where the idea of market drivers come into play. We need to buy where there’s economic growth. We should find a diverse economy with diverse amounts of jobs and an influence on both rental growth and wage growth.
Simply remember that capital growth follows wages.
#5 – Find a property located within five minutes of “hardcore” infrastructure such as schools, entertainment precincts, etc.
Infill areas typically have highly desirable amenities such as great schools, shops, cafe’ precincts and lifestyle areas as well as medical and educational resources. This is another reason why it’s important to buy where a self-sustained community already exists.
#6 – Look for a property which is located where benchmark sales of new and second-hand property have occurred.
It’s important to understand the synergy of a location. What’s happening? Look for benchmark sales of both new and second hand properties.
What properties have recently sold in the area which are creating a benchmark? Using the “worst house on the best street” strategy find an existing property near a benchmark and buy it.
#7 – Choose properties with a minimum maintenance and yield of at least 5.0% gross return.
We know that “capital growth follows rental returns”, therefore we search for markets where a 5% gross return will soon rise to a 6% or more.
The property you choose should have a minimum return that will sustain your investment portfolio.
#8 – Shop in the “meat and potatoes” price range of sub $500K.
Choose a property at $500,000 or less and not only have you purchased at an affordable price, many people shop in this price range, providing the greatest pool of prospective buyers should you need to sell.
#9 – Look for a limited dwelling supply when compared to the underlying demand.
As scarcity in real estate will drive prices higher, look for locations (e.g. infill areas) with a limited supply of dwellings and limited projects designed to add to the existing supply.
#10 – Get independent registered valuation support.
Obtain an independent valuation before purchasing your investment property for an unbiased opinion on its profit potential.
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