Top 6 Factors to Consider When Choosing an Investment Property

Investing in property can be a powerful way to build wealth and generate passive income. However, the factors that make a great investment property differ from those you would consider when buying a home to live in. There are several things to consider when choosing an investment property. Here are 6 key factors to making a smart and profitable investment decision.

1. Capital Growth Potential

One of the most crucial factors in property investment is capital growth—the increase in a property’s value over time. Research market trends, median sale prices, and historical growth rates in the area you are considering. Understanding these trends can give you an idea of potential capital gains, ensuring your investment appreciates in value over time.

2. Rental Demand and Yield

If you plan to rent out the property, assessing rental demand and yield is essential. Rental yield measures how much rental income the property generates in comparison to its cost.

• Gross rental yield is calculated by dividing the annual rental income by the property’s value and multiplying by 100. For example, if a property worth $500,000 generates $500 per week in rent, the gross yield would be 5.2%.
• Net rental yield factors in expenses such as council rates, insurance, and maintenance.

A strong rental yield, combined with high demand, can help offset ownership costs and ensure a steady income stream.

3. Location Matters

The old saying ‘location, location, location’ holds true for investors. A property’s location significantly influences its capital growth and rental appeal. Consider factors like proximity to public transport, schools, shopping centres, and employment hubs. Areas undergoing infrastructure development or urban renewal also often present excellent investment opportunities.

4. Type of Property

Your choice between a house or an apartment should align with the target market in the area.

• Houses often provide greater capital growth and higher rental returns but come with higher maintenance costs.
• Units tend to have lower entry costs and minimal maintenance, though strata fees and other expenses must be considered.

Understanding the demographics and demand in the area will help you choose the right type of property for long-term success.

5. Age and Condition of the Property

An older property may require significant maintenance, impacting your overall return on investment. Ensure you conduct thorough building and pest inspections before committing. While minor renovations can enhance value, major structural repairs can turn your investment into a financial burden.

Additionally, depreciation benefits on fixtures and fittings can provide tax deductions, making newer properties more attractive from a tax perspective.

6. Desirable Property Features

While you will not be living in the property, tenants will—so consider what makes a home appealing. Features like additional bathrooms, secure parking, natural light, and a functional layout can increase rental demand. Modern amenities, energy efficiency, and work-from-home spaces are increasingly sought after by renters, making properties with these features a solid investment choice.

Final Thoughts

A successful investment property requires careful consideration of key factors, from location and capital growth potential to rental yield and property features. By looking at these factors as a whole, you can maximise your return on investment and minimise potential risks.

If you are considering investing in property, reach out to Raiti Finance. We can help you navigate loan options, secure competitive rates, and set you up for a profitable investment journey.