Buying a property to rent out is a very different ball-game to buying a property as your family home. This is a business decision, not an emotional one and like any business decision, you should have a business case prepared and be objective in your evaluation.
One of the first and most vital considerations is whether you can afford it. What is the bank prepared to loan you, what will your repayments be and what rental return are you likely to get? When considering how much you need to repay on your mortgage, you need to also factor in all your outgoings on a rental property – rates, management and letting fees, insurances, maintenance, smoke alarm testing, body corporate fees (if applicable) and potential periods of non-tenancy. It is highly unlikely that you will enjoy more than 1-2 years of uninterrupted tenancy, so you need to factor in a few weeks of vacancy between tenancies.
Understanding the market conditions in the area that you are buying in is also vital. What is the demand for rentals? What is the demographic of renters and what type and style of property will attract them? There is a lot of information available on RP Data and on the Australian Bureau of Statistic website that can help you with this research. Local agents will also be able to provide you sound and detailed advice based on their experience. Before you consider purchasing a property speak to some local agents and find out what their portfolio consists of (number and style of property), average time on the rental market, average length of tenancy and average rents paid.
Speak to the local Council and find out whether there are any major infrastructure changes planned – eg new roads, hospitals, airport runways, schools or a change to transport routes, etc. All of these could impact on how sought-after your property may be and the rent that you will be able to achieve.
The key decision in purchasing a property in any location is whether it is the type of property that people want to rent. Buying a brand-new unit might seem more attractive than an older style property, but if that is not what consumers are looking for, it would not be a good investment strategy even if you have to expend money on doing some renovations. It is marketing 101 – give the consumer what they want!
Some other factors to consider:
Do you want this to be a short or long-term investment?
What is your financial goal? What do you want to achieve from owning another property?
If you are looking at buying units, should you buy multiple units in the same block or spread your investment across a range of properties?
Is there benefit in buying a group of properties next to each other?
The area – is the market likely to change? And – if so, what is the forecasted trend?
What are the current vacancy rates like?
Lastly, and very importantly, consider what your exit strategy may be BEFORE you purchase a rental property. One that allows you the option to relinquish ownership without losing any of your investment.