Checklist for buying an investment property

Investing in the right property can be a good strategy to grow your wealth. But keep in mind that property investment does not mean instant riches. Here are things to consider to help you maximise your investment returns:

Understand the cash flow strategy

Before you buy a property you need to understand your cash flow strategy. A positive cash flow investment means that it earns more than it costs to own. It means that the generated income of the property should be larger than the mortgage repayments and other outgoings. A negative cash flow strategy means outgoings will exceed rental earnings. You can then claim your annual losses against your taxes, and wait for growth in the value of the property to generate positive long-term returns.

Choose the right type of property

Are you buying a house, apartment or holiday rental? The type of property you purchase will determine the amount of rent you will receive. Usually, a house has better capital growth but an apartment has a better rental yield.

Pick the right location

A lot of investment advice suggests that investing in a property is all about the location. Look for a desirable area that has strong potential growth in the future that is likely to increase in demand. You should also consider the proximity to public transportation, schools, shops, markets, health care and other amenities, which will also have an impact on rents.

Know your target renters

The type of property you buy should appeal to your target renters. If you are buying a property near schools and parks, couples with children are more likely to be your potential renters. But if you are investing in a property that’s near a university, students from that university are more likely to be your tenants.  

Look for the right property manager

Property managers will manage your property by showing the property to potential tenants, collecting rent, and organising repairs. The management fees that you pay them are tax deductible. You can also manage your own property to avoid management costs, but it can be time consuming as you will have to do everything.

Select the right mortgage

For most investors, mortgage repayments will be your largest expense so it’s imperative to get the right loan. A popular choice among property investors is interest-only home loans because the entire monthly repayment is tax deductible and the size of the repayment is smaller, although it is important to remember that the principal will still ultimately need to be repaid.  

Bottom line

It’s important to do your own research before you invest in a property. Research the market, assess your financial situation, and compare properties in the area to get an idea of how much your rental yield is likely to be.