How To Buy An Investment Property

Back when you were buying your first home, your main aim was just to get on to the property ladder. So now that you’re all settled in your new place, it’s time to start climbing that ladder – and the most common question our advisors get, is how to buy an investment property.

And this time, you can climb much more precisely…

The keys to succeeding in property

Investment by thousands of Australian homeowners over the years has created a dynamic property market down under, with lots of opportunity for asset growth, steady profit and good returns.

But there’s plenty of pitfalls too – boom times and busts, paying too much, buying in the wrong area, buying or selling at the wrong time to name just a few.

Successful property investment is all about identifying the right property to buy at the right time for the right price.

And one of the best ways for an investor new to the property market to do that is to look for positive trends in four key areas of the market:

1. Look at the vacancy rate

An investment property is exactly that – an investment. It’s something you put your money into with a reasonable expectation of getting a return.

But in property as in life, nothing is certain. So before you buy in a particular area, check the vacancy rate, both locally, state-wide and even nationally.

The local vacancy rate of a suburb or area will tell you a lot about its prospects. Melbourne property hotspots like St Kilda have very low vacancy rates, simply because everyone wants to live there. A low vacancy rate means the home will be easy to rent out, a crucial aspect of an investment property, and also that it will be easier to sell when the time comes. This is an important factor when it comes to knowing how to buy an investment property.

State wide and national vacancy rates will give you an idea of the general state of the Australian property market – whether it’s a good time to buy or not.

Knowing How Vacancy Rates Work Can Help You Understand How To Buy An Investment Property

2. Check The Median Sales Price

When it comes to buying property, knowing how to buy an investment property that is not overpriced is crucial. Paying too much for a property can paint you into a corner further along, trying to sell for a higher price than the market can attract to cover your initial expenses.

The median house price for an area will give you a rough guide for how much you should be paying. In addition, it will also give you a rough guide for resale value and its prospects as a place for rentals, the usual source of income return for the investment prior to selling. Property hotspots have higher averages, while places down on the heel will have lower prices.

On a wider scale, the median sales price for homes nationwide in Australia is a firm indicator of the property market’s performance. If it’s dropping, it’s a good time to buy. If it’s rising, it’s a great time to sell.

3. Gauge The Number Of Properties On The Market

Another way to time your investment right is to look at the number of properties that are for sale on the market at any given time.

If the classifieds online and in print are stuffed full of listings, that could indicate a strong market with investors looking to cash out at the top. It could also indicate a weak market, with investors looking to simply get out.

If a particular area you’re looking to invest in property in has a high number of properties on the market, take a look at how long they are taking to sell. If they’re being snapped up, that’s an indication of positive demand. But if they’re languishing unsold, that could mean something is wrong, either with the market or the area itself.

Auction clearnace rates are important to knowing how to buy an investment property

4. Analyse The Auction Clearance Rate

Many people are selling their homes and other properties through auction these days. It’s a great way to drum up a higher selling price for your property than if you went through a regular listing with an estate agent.

But as a first time investor, it pays to keep an eye on the auction clearance rate: the percentage of properties that successfully go under the hammer. Not all auctions are successful, with bidders sometimes failing to get up to the minimum price or the auction itself falling over.

For economists and dedicated property investors, the auction clearance rate in Australia and even worldwide is one of the vital signs of the health of the property market. If the clearance rate is high, it means demand is strong. But if the auction success rate falls, then the property market could be getting weak, with buyers unwilling to risk their capital.

When it comes to knowing how to buy an investment property, have a look at the auction clearance rate for areas you want to buy in, as well as the overall Australian market. If there’s a positive trend, then it could be the right time to climb the property ladder. But if there’s a negative outlook, it may pay to bide your time.

Positive Trends For Making Property Investing Decisions

The common lesson for all of these areas is that you need to look for positive signs when investing in property – not just whether you like the colour of the roof or the results of the primary school next door.

By ensuring that you buy a property in an area with a low vacancy rate, a good median sales price and strong demand through auctions and regular real estate channels, you will be targeting a hotspot that could deliver a valuable property to your portfolio, hopefully giving you a good return over the years.

However, some investors like to go against the grain, and buy properties in depressed areas, or snap up real estate when the market has gone off the boil. There are many ways to succeed in property, but when you’re just starting out, the wisest course is to look for positive trends and ride them.

When you’ve got your first investment property under your belt, you can then start to look wider, using the knowledge you’ve gained acquiring your first and second homes to keep adding to your assets.