Blue Chip Mortgages Port Macquarie Finance

21 POINT INVESTMENT CHECKLIST

modified from top Australian Property Investors

1.    Select properties within the median price range.

Properties priced well below the median price range may be too small, not have the desired quality finishes, or not be the best possible area.

If the property is priced well over the median price range it will cease to become affordable to the vast majority of tenants. There are less tenants available in the high rental bracket.

2.    Select properties within sought after ‘lifestyle’ locations that will attract consistent rental demand by quality tenants.

Select properties in established residential streets.

3.    Select properties in areas within 15kms of the CBD but not the CBD or some CBD fringe areas (Refers to capital Cities)

4.    Select properties within suburbs and streets where limited land is available.

If there is limited land available for further development, you will have less competition for tenants.

Property values will also increase at a greater rate.

‘Limited land’ also means that the area is in demand… people want to live there.

5.    Select properties in suburbs with proven capital growth over the past 10 years.

Population =Price    Growth from immigration,Sea Change & Lifestyle and educational facilities are prime examples.

6.    Select properties close to ‘water’, e.g. beaches oceans and rivers.

7.    Select properties in suburbs, which have a high rental demand.

First call, then visit the ‘top’ agents in the area and check their rental lists to assess the rental demand, e.g. check how many properties are on their For Lease list.

Talk to the agents rental manager in regard to ‘rental growth’’ in the area.

8.    Select properties in areas which have ‘affluent’ tenants with high disposable income

More and more people are now leasing residential property and investing excess income into investments.

The higher the tenants income the more chance you have of raising the rental amount every year and the less chance your property will be affected in the event of a recession or market downturn.

9.    Select properties which are located close to public transport

10.    Select properties which are ‘in demand’ from corporate tenants.

Corporate tenants pay more money and are very secure tenants.

You can call relocation agencies (listed in the yellow pages) to find out what suburbs corporate tenants most prefer.

11.    Select properties close to educational facilities: Universities, major public and private schools.

12.    Select properties close to major sporting, dining and entertainment precincts.

These days, people prefer eating out rather than cooking and eating in.

13.    Select properties which have land content.

The general ‘rule’ is that land appreciated in value and buildings depreciate.

In certain circumstances, specific high rise apartments might be worth more than houses in the same area, because they provide their occupants with fabulous views – water, city, mountains

14.    Select ‘townhouse style’ properties

Town-homes should be preference to apartments, flats and houses built on large land lots.

Most Australians still prefer to live in a ‘house style’ living environment rather than a high rise apartment building but because of the ‘shift’ in our lifestyles people do not want to spend their free time watering the garden or pulling out the weeds

Apartment buildings do not provide the same level of security and privacy as does a townhouse property.

There are far greater body corporate rates to be paid to an apartment building than a townhouse property.

Townhouses have the greatest appeal to corporate tenants because of their easy maintenance, increased security, extra privacy features and outdoor ‘lifestyle’ areas.

15.    Select properties which offer high depreciation and taxation benefits.

Ask the property developer if they have a depreciation schedule for the property you wish to purchase, otherwise engage a quantity surveyor to perform a depreciation schedule analysis on the property

The higher the depreciation allowance for the property the greater the tax benefit… the less money you’ll have to pay from your pocket towards the cost of maintaining the property.

16.    Select properties within projects whose income potential is not based on “short term” or “holiday letting”. You are actually buying the tenant not the property.

As you can now see, with the “holiday based” investment property such as serviced apartments, you are not purchasing the building structure, you are actually purchasing the tenant.

If the tenant disappears, you can kiss your anticipated investment returns goodbye.

Furthermore, if your apartment is one of 50 or more, you will have 50 to 100 competitors who will want to sell or lease their apartment at the same time as you.

The old rule of property is that the balance between “supply and demand” dictates the price. If the property market takes a downturn and 50 or more “competitors” try to sell or “liquidate” their properties at the same time as you, it is very likely that your hard earned investment will be worth no more than 40% of it’s original value.

17.    Select properties that are located within smaller low-rise “boutique” style properties.

Select boutique properties, rather than high rise multi storey developments – less than 35 units in the project.

Exactly the same problems associated with serviced apartments as per the above scenario also stand true for any high rise apartment blocks – 35 apartments or more. Especially the new warehouse shell based projects.

If the property market takes a downturn and given the fact that you have so many potential competitors at your doorstep, what do you think will happen to your property’s rental earning potential or capital gain potential?

If your neighbours panic and sell their property (which is similar to your) at a lower value than their original purchase price, your property will automatically be devalued. Remember that property is worth only what a similar property last sold for.

You will obviously have less competition for rental in a development of 15 units than a development of 150 units. The less units in the development means the les chance you’ll have of having multiple neighbour “competitors” discounting their rental price, thus reducing your property’s rental potential.

If similar apartments in your building get sold for prices below your purchase price, your property will automatically be valued at the same price, making it impossible to “re-value” the property and release extra equity in the future.

18.    Selecting a property where the price of the property offers at the best gross rental return based on the “long term” rental guarantee the real estate agent is willing to provide.

Ask the agent to provide you with a rental price which they are absolutely sure is achievable in the worst case scenario.

If the “promised” and agreed to rental is not achieved by the rental agent after 2 weeks of trying to lease the property, the agent will receive no ‘marketing money’ and will have to make up the difference between the rental guarantee and the actual rental price of the property.

19.    Select properties within projects which are guaranteed to be built and completed.

Avoid the following types of off-the-plan projects:

That may present a risk of not satisfying bank pre-sale requirements. If the developer can not obtain the funding, the project will never be built.

Which are built by “amateur developers” who cannot obtain the right funding or building price to complete the project. Ask the real estate agent to name other projects completed by the same developer and go and inspect them personally.

Where the project does not have a builder “attached” at the time of your purchase.

Professional developers will have finalised the builder and construction contract price within the first three months of entering the market phase of the project. If they haven’t engaged a builder, you run the risk that a rise in the construction price will make the prise too risky or unprofitable for the developer and the project will never be built.

Which are not marked to being constructed within 8 months of commencing the marketing phase. Even large developers can run into problems and decide not to proceed with their project.

If the project does not get finished, you will lose money due to the transaction costs (e.g. solicitor, accountant fees, bank guarantee fees, etc.) spent on purchasing the property.

20.    Do not purchase off-the-plan properties which are being sold “subject to permit”.

21.    Select properties which have 3- 4 bedrooms, to maximise rental income.

Your preference should be to purchase properties that contain at least 3 bedrooms (there is a continuing high demand for 4 bedroom homes)

One of your goals should always be to increase the rental price of your property every year as much as possible.

Achieving the highest possible rental returns is far easier with a 3 – 4 bedroom property.

One of the only reasons to overlook the above criteria is if the property is sold as an EXTREMELY low price.

The only legitimate reason this could happen is as a result of dealing with a desperate vendor.