Property Investment - Researching The Location

1. Infrastructure

It's important to consider a town's infrastructure when looking for an investment property, especially in terms of what future investment is to be made in that area.

Local Authorities and Councils will have an annual budget for both the maintenance of current infrastructure and also for the construction of new infrastructure projects. Finding out how much the annual budget is and future investment will give you an idea of how proactive the authority is in attracting new residents, extra funding and business opportunities.

Most councils will be happy to provide most of the information and a lot of it will appear on their websites. Also look at the websites of local big businesses to get information on their future plans which will attract investment and create new jobs in the area.

2. Proximity to Amenities

In most cases, the main purpose in buying an investment property is to attract tenants who will pay a weekly or monthly rent.

It's important to know what type of tenants you are looking to attract and so any potential investment property will need to be close to the amenities required by the tenants. A city worker will want to rent a property close to shops and transport whereas a farmer will have different requirements.

Most properties in close proximity to the town will rent fairly easily compared to those which are a 15 minute drive outside of the town. Properties close to the town will also attract tenants who don't have their own transport.

So it's best to know what your tenants requirements will be before you purchase.

3. Local Employers

It will always be easier to find tenants in towns where there are large employers in the vicinity. These include factories, large shopping malls, hospitals and universities.

With hospitals, many of the employees may be employed on a temporary basis and so owning or buying their own property in the area may not be a choice for them and renting is the easier option. Also, in the case of universities, a lot of the students will come from out of town and so renting is again the best option. This offers them more flexibility however it also means that your investment property could be vacant during certain months of the year and may switch tenants on a regular basis.

Again, be sure to research the future plans of these employers. If a major employer is due to shutdown or relocate in the near future then there will be a glut of empty properties with landlords doing whatever they can to fill them including drastically reducing the rent.

4. Geographic Location

This will determine both the type of tenant you get and also how easy your investment property will be to rent out.

Holiday properties near the ski fields will command a higher rent than a property in the city however it may only rent out for a few weeks per year. A beach house will also be in the same position. Again, it's important to understand the type of tenants in the area, what they are looking for, how much they are willing to spend, etc.

A beach house may command a high rent but may only attract retirees who are willing to pay top dollar and so this narrows the number of potential tenants. Properties closer to cities and amenities will likely attract a higher number of tenants willing to pay a lower weekly rent.

5. Demographics

Spend time understanding the demographics of the areas population and you will have a better idea of the type of tenant you can expect.

Find out the populations' average salary, the different age brackets, percentage of those married and single and the percentage of the population that rent.

The demographic information will show if the town's population has been growing or declining over the past number of years and therefore if an investment is a safe bet. It will give you an idea of the earning capacity of tenants and how much rent you can expect.

It may also show movements of parts of the population to new parts of the same area due to factory closures, increase in crime etc.

6. Property Median Prices

Historical property prices will be a good indicator to the fluctuations in property values in the area over time.

A property may look like a bargain at first glance but with a little research you may discover that the same or similar properties changed hands previously for a lot more money. There may be a simple explanation for this such as a vendor wanting a quick sale but it may also reflect a dive in the local property market for various reasons.

Median prices will give an indication of what you can expect to pay for the different types of properties (no. of beds, land size, etc) in the area and the figures may also show the number of recent sales. The historical figures will also give a pattern of historical growth or decline in the area over time and this could be used to indicate a property's future value.

7. Occupancy/Vacancy Rates

Each area will have a certain percentage of rental properties tenanted (occupied) and the remainder without tenants (vacant). Towns with a high vacancy rate (normally deemed to be more than 4%) will make it possibly harder to find tenants to fill your rental property as it shows a lot of competition for too few renters.

Too few renters will also mean that landlords will have to be more creative in attracting tenants and may need to reduce the rent and offer other incentives to entice renters.

Areas with high employment and a strong outlook for the future are likely to have a higher occupancy rate and this may even cause competition amongst renters, allowing landlords to set higher rents.

8. Property Managers

Finding a trustworthy property manager is important if you will not be looking after the property yourself in terms of finding tenants and collecting the weekly or monthly rent.

Good property managers will communicate regularly, carry out periodic property inspections, arrange repairs and, most importantly, regularly deposit the rent (minus expenses) to your bank account.

There are also many other duties a property manager can carry out and it's important to question those managers in the potential area to find one or more likely candidates that are going to take care of your investment.

Find out how many rental properties they manage, how long they've been in business and ay other questions you deem necessary until you find one you are happy with.

In closing, the above points are only guides for you to learn more about an area before you make an investment. There may be more factors you'll need to consider depending on your situation but if you research the above you naturally increase the amount of knowledge you have about the area. And the more knowledge you have will reduce the risk of a potentially poor investment.

5 Steps To Successful Property Investment

When looking to invest in property it's always important to take a structured approach to ensure you get only what you are looking for. Over the years I've developed the following structure and I'll always stick to it so that I know I have done all the homework necessary to make a sound investment and reduce any potential risk to a level I'm comfortable with.

Step 1 - Research Research Research

This is possibly the most important aspect of any investment decision. When I talk about 'researching' a potential investment, what I mean is to do all the necessary homework to find out if the investment is right for you and if it will provide the return you're looking for.

Sometimes it is tempting to overlook research and maybe follow a tip from a friend on a potential investment. Many people also don't do research because they don't know where to find the required information and so they may make a blind investment, hoping on good returns. Even worse, they may put off making the decision (to invest or not to invest) and stay stuck in procrastination while the asset starts to show strong growth.

So what needs to be researched before investing in property

Location - such things as the population, main industry, main employers, future investment in infrastructure, tourism, local universities.

Property prices - average, median, recent sales, potential rental returns, previous and predicted growth.

Tax and ownership laws - country and state laws, occupier/investor tax rates.

There may be more areas you need to research depending on your situation but the main objective here is to carry out the research to a level you are comfortable with. You can never do too much research.

Thorough research will give you peace of mind to make confident investment decisions.

Whatever you are trying to achieve, someone has already done it before and the information is out there. It may be in books, newspapers, special reports, published on the Internet or available from real estate agents. You can find the information you need to make a confident investment decision.

Step 2 - Know your Numbers

Note: This step primarily deals with rental returns and does not take a property's annual appreciation or depreciation into account.

Before investing in property it's important to do the numbers to know

What you can afford to purchase

Purchase and ongoing upkeep costs

Potential rental returns

Monthly cash surplus or deficit

Once you know all of these figures you can then decide how much you can afford to spend within your budget, what rental return you're looking for and whether you will gain a monthly cash surplus or if you will need to contribute towards its monthly upkeep.

So what are the common numbers to know and calculate

The Purchase Price

Purchasing Costs - items such as Stamp Duty, legal fees, real estate agents' commission, legal fees.

Rental Income - If the property is rented to tenants, how much rent can you charge

Ongoing Costs - Management Fees, mortgage repayments, repairs and maintenance, letting fees, Municipal or Council rates.

Net Return - this is the end result once you have accounted for all of the income and expenditure and it will show if you will have a cash surplus or deficit.

The more properties you calculate returns on, the better idea you will have of what is available in the market to suit your requirements. You'll also protect yourself from any surprise costs. It's wise to be conservative with your calculations and maybe add in a contingency amount.

Please remember, there may be more costs you need to factor into your calculations according to your situation

Step 3 - Create your Criteria

Before you go shopping for your investment property it's important to know exactly what you're looking for so that you buy a place that suits your requirements. The best way to do this is to create a list of certain criteria that a potential property must meet.

You may choose to be stringent on some of the criteria such as a set limit for the purchase price but then you may be a little more flexible on other criteria like accepting $10 less than the expected weekly rent.

So what would you include in your criteria Here are a few suggestions:

Town population no lower than 10,000

Expected rent at least 7% of the purchase price

Brick house on land, no more than 10 years old

Initial repairs to cost no more than $1,000.

Whatever criteria you choose is up to you but it gives you control over what you buy and will certainly decrease the time you spend looking for a property. From carrying out your research and working out the numbers you should find it easy to create your criteria. Now you can go and buy the property that's right for you.

Step 4 - Property Insurance and Management

Like any investment, we always look to minimise the risk of loss or damage and it's no different when it comes to property. There are a number of ways to do this including taking out a suitable insurance policy and finding the right property manager.

Whether you buy a property to live in or rent, it is potentially at risk for various reasons and so you can insure the property against these risks. Insurance policies can cover you for loss in the case of structural damage, theft, flooding and many other instances.

Landlord insurance policies are also available for extra cover of instances such as malicious damage, legal fees, loss of rent etc. So shop around for the policy that's right for you.

If you are buying a holiday home or a rental property you might consider employing the services of a Property Manager. The role of a Property Manager is wide and varied and a good one can save you a lot of time and money.

They can find new tenants, arrange to have your property cleaned, collect rent, keep an eye on your property, pay your bills out of incoming rent and much, much more. Finding the right Property Manager will pay off rather than choosing someone who won't look after your property the way you want them to.

It's important to shop around to seek out the best Property Manager and you can do this by asking the right questions. A good Property Manager will communicate regularly with you and be available to address any concerns you might have.

Additional measures to secure your investment include the local neighbourhood watch, security alarms, window locks and smoke alarms.

Step 5 - Tracking your Investment

Once you've invested your hard earned cash you'll want to know how it's performing and what sort of return you're getting. Again, we're only going to look at rental returns rather than growth as the growth is only speculative.

Every month you should keep all receipts of income and expenditure concerning the property. This includes:

Statements from the Property Manager

Bank mortgage statements

Receipts for repairs

Payment receipts for Municipality or Council rates

Any correspondence regarding the property

All we are doing here is tracking the income and expenditure so we can see what the return is. By tracking the figures regularly you can see how your investment is performing and this information can then be filed with your annual tax accounts.

Your accountant will be able to advise you on what extra records to keep ensuring you get the best annual deductions.

And that's the final step to Successful Property Investment. All it takes is one step at a time to become familiar with the process and although there are many other ways and processes advocated by many other investors the end result is ultimately to leave you empowered to make the correct investment choices.

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