Things to think about when buying an investment property

Owning an investment property is often something which people aspire to. On the other hand, it can be an investor’s worst nightmare. It really just depends on your personal risk appetite. If you’re in the camp of dreaming about investing in property, there’s no doubt you’ve heard stories about people who’re able to build up massive property portfolios and live off the rental income.

If you’re considering this avenue, it’s important that you know what to look for when house hunting and choose the right house to buy. These are some of the features you’ll need to look out for when buying an investment property.

Location

You’ve heard it before. When it comes to property, it’s all about location, location, location. You’ll need to make sure that your investment property is located in an area where people actually want to live. For example, you might find a really great deal and then find out it’s next door to an aspiring drummer. It’s important that your investment property is not only located in a quiet environment but close to schools, public transport and shops. These are the factors which people look at when choosing where to live. So, it’s a good idea to choose a rental property which shares those same features. You could also make sure that property prices in the neighbourhood have increased in recent years. That way you’ll know you can expect to make money when you eventually sell.

Price

This is one of the most important factors to consider. You need to weigh up the price you can afford to pay for the property and the rental income which you can expect to receive to cover the bond and additional costs. A rule you could think about applying is the 1% rule. Here’s how to think about this rule. Let’s say you’ve paid R500 000 for a small flat. You should be able to charge 1% of that, or R5000, each month. You’ll need to look at the prices which similar flats are being rented out for in that area. Are tenants willing to pay that price in that neighbourhood? You’ll also have to consider rates, taxes, levies and other costs. Ideally, your rental income should cover all these costs.

Size

Rental properties are, for the most part, two to three bedroom family homes. It’s important that before you jump into buying a property you know what’s popular in your area. There’s little point in buying a studio flat in an area best known for large family homes. At the same time, there’s no point buying a mansion, with multiple bedrooms and bathrooms, in an area where young couples and students want to live.

Decor

An investment property needs to appeal to the majority, rather than the minority. That means it shouldn’t decorated in your taste or your preferences. As much as you might want a bright yellow wall in your bedroom or faux wood cladding in your lounge, it’s unlikely a tenant would want these features in their home. So, think carefully about what you can do to improve the decor in a way which your potential tenants would appreciate. One quick look at popular Pinterest boards will show you that interior designers favour white walls, minimal furnishings and pared down accessories. It’s important to keep those tips in mind when decorating your rental flat before it goes on the market.

Security

For many people, landlords and tenants alike, a major concern of a rental property is the security available. As the landlord, you’ll need to be sure the property has, at the very least, security gates and burglar bars. The exterior of the building should be fitted with fencing, electric gates and beams. It goes without saying that the building should be protected by an alarm company and armed response.

If you’ve been thinking about buying a rental property and dream about a future as an investor in real estate, it’s crucial that you’re properly informed. That’s why it’s a good idea for you to have a look at law guides around buying and selling a house. You’ll know what you should keep in mind, what you can expect and what you need to keep a look out for. This is possibly one of the biggest financial decisions of your life and one which shouldn’t be taken lightly.