How to Find A Good Investment Property?
The most obvious question in any real estate investors mind is: how to find the perfect investment property?
How to Search for A Good Investment Property on the Internet?
Which is the best place to start? Without doubt, your search should start with the internet. The internet will save you hours and hours of your time and effort.
The old theory on how to buy investment property will tell you to visit 100 properties, short list 30, make offer on 10 of them, get vendor response on three of them and finally buy one does not work in this fast paced world. You will lose interest after viewing 5 properties because of the leg work involved.
Mine the Data
The internet has changed how you find good investment properties. There is so much data available on the internet, not only regarding properties for sale in your area of interest but also recent sales, council rates, rental rates, mortgage rates etc. that you can check the numbers on your investment and check if they meet your buying criteria before rushing to view the property.
You must sign up for a popular internet real estate site in your area; most sites will give you an option to search by price range, location, number of bedrooms and key search terms.
Maximize Rental Return
In your preferred area and price range (depending upon your finance approval,) look for properties that have maximum number of bedrooms and land area. Number of bedrooms will decide how much rent you will get from the property. A four bedroom house will normally command a better rent than a three bedroom house. So, in your budget, try and buy a house that has maximum number of bedrooms. A large land area will give you options for the future. Always remember buildings depreciate in value whereas land appreciates in value.
Buy Below Market Value
By entering words like ‘motivated vendor’, ‘diseased estate’, ‘mortgagee sale’, ‘urgent sale’ etc. in the search criteria, you can short list properties that are like to be sold below value.
Use the Phone
Once you have sort listed the properties, don’t rush to view them – save fuel! It is very expensive and you will also save the environment. You must now speak with the real estate agents of the short listed properties on phone to find out about the condition of the house, construction materials, likely rent, vacancy rates in the area, government and market valuation, location of the house in relationship to the land, proximity to schools, public transport, other amenities and as to why is the vendor selling the property.
Make Use of Property Investment Calculator
Try and collect all the facts and financial figures like land rates, body corporate expenses, insurance rates etc. You must feed these figures into a property investment software (you can choose from many software’s available in the market depending upon your budget) to arrive at gross return, net return after tax, IRR and cash flow. This small investment is a must and will help you compare various options available to you.
View the Short Listed Properties
Only once you are satisfied with the quality of property, numbers and financial returns should you fix up a time to view the property.
The above process should not lull you into becoming an armchair investor. There is no better way to get the feel of an area without viewing several properties. Attend as many open homes you can and talk to various people like your accountant, lawyer, real estate agents and other property investors. This is especially more important when you are starting out.
Befriend Real Estate Agents
Another important fact you must remember is that most good investment properties sell before they are advertised in the newspaper or come on the internet. You have to befriend few real estate agents in the area where you wish to buy the property and tell them of your requirements. Other sources of information can be lawyers, mortgage brokers, accountants and bank managers.
Real estate agents love to work with professional real estate investors because they get repeated sales. It is very important that you give them due respect and do not waste their time. A good real estate agent will inform you regarding properties that are not even listed and are likely to come to the market shortly. You can do your due diligence on these properties and react before anyone else does with cash offers.
Remember that there is no perfect investment property—it is always a trade-off. If it is high cash flow, the capital-gain prospect may be low. If there is more land for future development then the initial cash flow may not be as per your expectation but if the price is low, there may be additional costs involved in doing up the property before it can be leased. The property you buy will depend upon your situation and long term plan.
Buying investment property can be a very simple and an enjoyable process if you follow the fundamentals correctly.