5 things to look out for in an investment property
By Aaron De Silva
/ The Edge Property |
So you’re on the market for an investment property. Like any investment, it pays to do your homework before plunging headlong into its depths. But unlike stocks and shares, property purchases run into the hundreds of thousands – if not millions – rather than ones, tens or hundreds of dollars. So before you embark on your journey towards becoming a real estate mogul, here are five things to consider if you want a property that will provide a steady stream of rental income, and, in the future, significant capital gains.
1. Hello, Neighbour
Source: MKPL Architects
Real estate is all about location, location, location. A property’s immediate surroundings have a direct impact on rental value. It goes without saying that developments with convenient access to public transport and amenities such as schools, healthcare facilities, and supermarkets will be in greater demand than those without. But also take notice of whether there are institutions like universities or hospitals in the vicinity. These would guarantee a steady pool of potential tenants – students, academic staff, and healthcare professionals.
2. Crystal Ball Gazing
Source: URA
Once you’ve narrowed down a few choice locations, find out what’s being planned for the area(s). Get an overview of future development by surveying the URA’s Master Plan. If the area has many new malls, business parks, and condos coming up, there’s probably good growth opportunities. The malls and offices need to be staffed, which means a potentially bigger pool of tenants. Take note, however, that if many new condos are being built, that means competition. Your tenants would be spoilt for choice. It might be a good idea to walk around the neighbourhood and chat with locals – residents, shopkeepers – to find out more about the area’s upcoming developments.
3. Condition Report
Source: The Interlace
If your intended property is a new build, run some background checks on the developer’s and construction firm’s credentials. The idea is to assess the quality of their previous projects. Ask a friend or acquaintance who might be living in one such project. If your intended property is an existing build, check the age and condition of the development and its facilities. If the unit itself is not in tip-top condition, don’t fret. It just means you get the chance to do some remodelling. This, in turn, would mean the opportunity to fetch a higher rent, and, in the long run, increase your capital growth. This is something you can’t do with stocks and shares.
4. Money Matters
Source: Silvertrac Software
If your budget allows, consider buying a property that’s at or around the median price for properties in the area. If the median price is, say, $1.5 million and you can fetch $3,500 per month, would a unit valued at $3 million give you $7,000 a month? If not, then your rental yield would be lower, and it probably isn’t worth it. Also, find out what the average rent in the area is. Ideally, the rent should cover the mortgage payment, property taxes and maintenance fees. But if charging the average rent isn’t enough to do all this, then keep looking.
5. Emotional Intelligence
Source: The Daily Beast
So you’re a fan of real estate/home improvement shows like HGTV’s Property Brothers, Love It or List It, or Fixer Upper. You might fantasize about buying a property, renovating it, turning it into a dream home, and then renting it out. That’s romantic, but it’s dangerous to get too emotionally attached. It’s an investment property, after all. Keep in mind that you’re buying it for the rental income and possibly long-term capital growth. This way, you’ll feel less anxious about the property once it’s been tenanted.
Ready to invest? Check out our list of top condos with en bloc potential
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