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How to choose the right investment property

Cheap home loans can be enticing to invest in property, but you need to purchase the right kind of dwelling.

If you've built up significant equity in your home after many years of mortgage repayments, you could be in a good position to invest in property.

As a homeowner, you'll already understand what it takes to run a property. You'll have adequate knowledge of the best repair people for maintenance issues and understand the costs associated with property ownership.

Investing in property is a big step, but if you plan ahead and buy the right place, you could reap the rewards. If you use your home's existing equity you won't need to stump up a deposit and the rental income can help pay off the loan on your investment.

One crucial consideration is what property to buy. There is a range of investment dwelling options open to you, from houses with backyards to compact inner-city apartments. While it's important to buy in the right area, it's just as necessary to have a hard think about what the right property is for achieving your financial goals.

What do Australians prefer?
One way to work out what to buy is to consider recent trends in Australian living habits.

During 2013, the demand for medium-density housing broke records, with the proportion of new home approvals for this type of housing reaching 43.4 per cent, according to a February statement from Bankwest.

However, low-density housing options are still common across Western Australia - think freestanding homes. By contrast, if you're looking to buy in inner-city Melbourne or Sydney, high-density dwellings such as apartments tend to be a popular choice among tenants such as young professionals.

If you're looking to invest in middle-ring suburbs, medium-density property could be your best option. Townhouses that are more spacious than high-rise apartments but more affordable than the increasingly obsolete quarter-acre lot are a welcome compromise that could prove to be the perfect investment opportunity.

Investing in an apartment
Unlike a townhouse or freestanding home, apartments don't have backyard areas that could require significant maintenance.

However, there are other costs associated with buying an apartment, which has both areas owned on individual title as well as communal areas.

In order to keep communal spaces in apartment blocks and townhouses up to a tidy standard, owners have to pay strata fees. As a landlord, you'll need to pay these fees, which you'll factor into your tenants' rental repayments to ensure you cover all your costs.

Apartment living is popular with city professionals and singles. If you buy into the right area, an apartment can be a sound investment - you just need to be aware of the associated costs.

Buying a townhouse
A semi-detached dwelling such as a townhouse is a happy medium between a high-rise apartment investment and a pricier home.

While you may not earn rental income as high as a larger, freestanding home, consider what your rental yield will be.

A mortgage on a townhouse may be significantly less than for a larger home and you could still attract a variety of potential tenants, from young families to older couples.

Taking out a mortgage on a second home
Many suburbs in capital cities that are bursting with local restaurants, shops, schools and parks as well as being supported by good transport links are still littered with more expansive homes, which were built before medium- and high-density housing approvals started to take over.

These suburbs can be highly sought-after by families looking to secure the right environment to bring their children up in, but as demand rises, many are forced to rent instead of buying.
A generous family home in a popular school zone could be a sound investment, particularly if property prices are driving would-be buyers to rent instead.

However, while freestanding homes may draw in a significant rental income, you need to consider how hefty the mortgage repayments could be.

Image credit: hikingartist.com

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This information has been prepared without taking into account your individual objectives, financial situation or needs. You should, before acting on this information, consider its appropriateness to your circumstances.

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