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How To Choose The Right Investment Property

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By : Rob Thompson    99 or more times read
There is quite a science behind choosing the right investment property to maximize capital growth, cash flow and future development potential. However by following a few basic rules can result in the difference between having an average performing property and having a property that consistently outperforms the market.

Ask most property professionals what to look for in a property investment and they will undoubtedly recite to you the tired phrase “Location Location Location.” Whilst location to transport, infrastructure and amenities is important in maximizing future growth, there are other factors that are equally as important. Certain types of properties will outperform other properties in the same location, so what are these properties?

Firstly nothing can beat a property that you can develop to a better and higher use. These properties include large sub dividable, or underutilized high-rise zoned blocks of land, properties situated on main roads and high traffic areas which can be used for commercial use, and ugly ducklings which can be transformed with a budget cosmetic renovation. All three of these development options can produce massive results to both the value of a property and the cash flow it produces in rents.

Sub dividable properties and high-rise zoned blocks of land are becoming more and more common, but most people do not know how to identify them. Each local council has different rules on what you can do with a certain type and size of property. A councils zoning restrictions are the best place to start if you want to find out if you can subdivide or build a multi-level building. The easiest ways to find out what you can do is jump on the councils website or phone them and speak to a town planner. A town planner can tell you the restrictions in place and the required size a block of land needs to be to subdivide or build that multi story development. Often councils will review zonings for areas every few years, so if you get a negative response it always pays to ask when they next plan on reviewing the zonings for that area.

Recently I was looking at purchasing property in an area that I felt had great potential for future development and was told by the local town planning department that I could not currently do anything with the block of land in question. Something told me to pursue the matter further so I asked “I have heard that you may be looking at changing the zonings for properties in this area soon” to which the town planner replied “I will put you through to the task force in place to rezone the area.” It always pays to ask lots of questions. When the call was put through and I talked to a member of the task force I was informed that the current mayor has told them to push through rezoning of the area before the year is out. I then asked still more questions to which I got the reply we are looking to rezone this area to high-rise development. High-rise zoning would have a major effect on the value of properties in this area. In the property game knowledge is definitely power. Other important info is freely available from your local council including access to flood mapping, and on council websites you can view plans and development approval documents of similar properties.

Two years ago I purchased a 3 bedroom unit in the desirable Queensland beachside suburb of Broadbeach. The reason that this property appealed to me as an investment was because it was one of only five units on a high-rise zoned block of land. After purchasing this property I made it known to the owners of the other four units that I would like to purchase theirs as well. At the time of writing my family is about to settle on the final one of the five units, thereby giving us full control of a high-rise development block. The interesting thing is that we paid no more money per unit in the building than similar properties sitting on blocks of land that are not zoned for higher use.

I believe that main road residential properties in built up areas are an untapped goldmine. Reason being that they are not particularly desirable dwellings in their present use so can often be bought for a song or under great terms and conditions, but the potential many of them have as a business premises is enormous. One such property I purchased in a joint venture has proven to be a perfect example of the potential of these types of properties. The property was listed for sale as the cheapest in the area due to the cosmetic state of the property combined with its position on a very busy road leading to the city of Brisbane. Locals knew the property as the ugly brown house on the hill and many stopped in to compliment us on the renovation that we undertook. Once renovated I secured a lease with an accounting firm who were very happy with the prominent exposure of the property for their business.

Renovation is by far my favorite way to add value to a property, and is the vehicle by which I built my portfolio in the beginning. The most important factor to consider when undertaking any renovation for profit is not to overcapitalize. Overcapitalization occurs when you spend more on the renovation costs than the increased value you add to the finished product. Always keep in mind when undertaking a renovation that your aim is to add much more in perceived value than you have spent. At the same time there is no use in trying to do everything yourself to save money thus taking forever to finish the job, because of the time cost involved. Time cost factors include interest payments on loans, rates bills and most importantly lack of rent you could be achieving to assist with these holding costs. If you are a hands-on person go for it, but know your limitations especially when it comes to electrical, plumbing and structural repairs. If you are someone who is good with delegation you may like to project manage the tradesmen or you can just hand the project over to renovation specialists.

When purchasing an investment property it is always good to have someone batting on your side. Buyer's Agents can be a valuable asset to the property acquisition process. A good Buyer's Agent is a real estate agent who does not sell properties, but has access to every property on the market and many that are not currently publicly listed for sale. They work on your behalf to source, negotiate and secure you a quality property at the best possible price and terms.
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