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What to look for in an investment property

An objective and thorough analysis of investment property is required. Aspects such as location and type of property matter. We explain.

Investment Property

Article summary

  • Determine your objectives before embarking on property investment.
  • Know property trends. For example, demand for large properties in remote areas has increased due to the work-from-home lifestyle.
  • Research a location before investing so you know what factors may affect the value, such as the distance to public transport.

Property investment remains the most reliable way to generate long-term income.

Even though the property market is currently sluggish due to interest rate hikes and post-pandemic economic difficulties; experts predict interest rate hikes will come to an end soon, which may in turn result in pent-up demand for properties being unleashed.

Investing in property is different from purchasing a home in that you take the emotion out of it and analyse the property purely on objective factors. Here are some of those factors.

1. Type of property

You need to decide what type of property you want to invest in, which will in turn determine what factors you should be examining.

  • Commercial property generates higher profit than residential property (the Capex rate shows +11% for commercial properties, versus 5-8% for residential properties).
  • However, commercial properties require constant management.
  • Commercial properties are sensitive to economic conditions. For example, retail properties performed badly during the pandemic but may improve in the post-lockdown period.
  • With residential properties, the factors depend on trends in lifestyle choices. For example, properties near the city centre were a poor investment during the pandemic but may be better now that people are returning to work.

2. Location

Generally considered the most important factor in property investment. You’ll want to keep abreast of trends in the market so you know which locations you should be targeting.

  • For example, many people are working from home nowadays and thus upgrading to larger properties in scenic areas. This makes large residential properties in remote areas a wiser investment than it may have been in the past.
  • You need to assess all the aspects of a location that might affect property value. For example, being near an industrial area will negatively impact its value due to noise and pollution. Being near public transport, hospitals, schools etc will boost its value.

3. Condition of the property

As with other factors, you need to determine your goals. Are you looking to invest in modern properties, or buy older properties and fix them up?

  • Generally, investors will want to ensure properties are in good condition, especially if you’re planning to let them out immediately.
  • You’ll want to take into account how easy it is to add features to the property. Older properties may be hard to sell because it’s harder to incorporate technology.
  • A property that’s in poor condition may not necessarily be a bad investment, in that you could buy it at a lower price, renovate it, and sell it at a profit. This is known as house flipping.
  • In any case, you’ll want to arrange a property inspection to identify patent defects.

Seek advice from professionals

It helps to employ an estate agent before investing in the property market. They can advise you on property trends, and help you determine what location and type of property meets your goals.

A property attorney is also beneficial. They can help you navigate the legal aspects of property investment, such as your obligations as a landlord and the zoning laws in your area.

In summation…

Determine your objectives beforehand. This in turn determines what you need to look for in an investment property.

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