There are many things to consider when it comes to building an investment property in Australia - but we still think it's a better option for new investors when compared to the hassles of renovating. If this is your first investment property, forget about capital gains and interest rates for a moment while you read up on some helpful tips from one property investor to another.
From finding the right block size to knowing where to splurge on upgrades, Metricon Regional West manager Simon Taylor says it’s often the small details that can make the biggest difference. Here are a handful of property investment tips to add to your investment strategy.
Simon's top property investment tips
Don't overcapitalise
Overcapitalisation is when you spend more money building the house than what it would be worth to sell it. This can be one of the biggest pitfalls for anyone new to property investing. So how do you avoid it?
“If you don’t have the budget to go big, then don't go big," Simon says, "choose a package price at the lower end so that you can build within your means. As well as reducing your risk, being able to sell at a lower price point also exposes you to more of the market.” Smaller homes still garner plenty of interest - you might look towards a first home buyer or anyone looking to downsize.
First impressions count
“One thing that is always important to consider is putting on a nicer façade, which can be an additional cost,” Simon says. “You want to separate your home from others on the market, and that means making sure it has street appeal.”
If you’re planning on selling, he also recommends getting the home staged for sale so that you can present it in the best possible way.
Consider the land size
For investment properties, you want to look for land that will enable you to build a home with a minimum of three to four bedrooms. “If you’re looking to increase rental returns, a minimum four is generally preferred,” he says. “Internally, if the block size allows, aim to provide at least two living areas. If the home is on the smaller size, try to create an illusion of space by adding higher ceilings and larger windows."
While the land size is quite important, it's not a deal-breaker. With the right home in the right location, your rental income can still be significant even in a two-bedroom home.
Don't overlook landscaping
Landscaping not only sets your home apart but also ensures you appeal to multiple demographics. Investors looking to rent the property out want something that is ready to go so that they can lease it straight away, while families, downsizers and retirees are generally looking for something low-maintenance. Low-maintenance is good for you too - you don't want the hassle of any maintenance issues or maintenance costs.
Make it a blank canvas
You generally want to keep the colour palette reasonably neutral. “It’s best to keep it as simple as possible so that it appeals to widest range of people,” Simon says. Real estate agents and property managers will tell you the same thing - this isn't your own home, so keep your personal style out of it. If your investment is all about rental yields, make it a property that people can see themselves living in.
Kitchens and bathrooms sell houses
There's a saying which real estate agents have had for years now - in the Australian property market, kitchens and bathrooms sell houses. Simon recommends if you have some spare cash to spend, these spaces should be the first to benefit. “Upgrade toilets or taps, add ceiling to floor tiles and always try and splurge on stone benchtops and counters if you can,” he advises. “While it won’t be important to everyone, you are always going to get people who want stone.”
Keep an eye on the property market
What you stand to make on an investment property is heavily influenced by property market rates. Look at the current real estate market and, if you’re able to build something, make sure there is a difference between what the finished product will cost you to build and what it is likely to sell for. If the return isn’t going to be worth the spend, then look at reducing your budget.
Other metrics to look out for:
- Capital growth - it can be hard to know this for sure, but a little bit of research as to whether the other homes in the area are on the rise will help you determine whether you are choosing to build in a growth area.
- Average property price - review the area where you plan on building - if your property value seems much higher than other lots in the area, you might be paying over.
- Vacancy rates - find out how likely it is you'll find renters in the area you plan on building.
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Disclaimer: While we've tried to be as helpful as possible, this article should not be taken as professional financial advice. It contains general information only, and you should seek out independent, professional advice before making any financial decisions. Metricon is an Australian company who builds homes in Sydney, Melbourne, Brisbane and Adelaide.
