5 Simple Ways to Avoid a Vacant Investment Property
5 Simple Ways to Avoid a Vacant Investment Property
Buy an investment property in a good area and rent it out – that’s the path to success, right? It might sound like a simple proposition to buy a house and rent it out, but even after finding a good real estate agency to handle the nitty-gritty details, there are some pitfalls you could fall into as a landlord. We’ve come up with some things to think about when buying an investment property that will help keep the money flowing and your tenants happy!
1. Make sure your location matches your market
There’s a lot to be said for knowing an area as well (or almost as well) as a local. If your target market won’t live on this side of the main road, or if there’s some bad history in the area, you want to find that out before you’ve signed any paperwork. For example, you might look at a map and decide the house is close enough to schools, but if those schools don’t enforce zoning, or if they’re not preferred schools, no one will want to pay more to live there (and it may actively dissuade people from moving in). As the old saying goes, if something looks too good to be true, it probably is.
Look for areas with low vacancy rates, as you’ll be less likely to find yourself without tenants, but you need to know who those renters are. Are you more likely to rent to young families or university students? Who else lives in the area? What problems will that potentially bring down the line? Being able to answer these questions will help you to make sure your property matches your intended market.
2. Make it something special
Renting a house is usually more involved than counting the number of bedrooms and car spaces. Your investment property should have something special or unique about it that sets it apart. It might be solar panels and water tanks, or it might be proximity to schools, but it should have something that will increase the demand and justify a higher rent than a similar house in a different location.
Also, remember that your tenants and people and there are certain areas of the house that will appeal to them more. A nice kitchen or bathroom will make a world of difference to renters, so think about things like whether the only toilet in the house is in the bathroom in a four-bedroom house. If you wouldn’t be okay with living in a property, your tenants most likely won’t be either.
3. Make sure it’s right for renting
While a beautiful garden or a bigger block might seem like the perfect feature, you must be realistic about your expectations. While the garden might be a great feature for renting the house out, most tenants aren’t going to spend a lot of time maintaining a garden or large lawn. If you do choose a house on a larger block, it might be worth seeing what you can do with that extra land (such as building units) instead of letting it sit as is. If you’re content just to have the land, make it as easy as possible for your tenants to maintain. Plant some hardy grass, and unless you’re going to supply a gardener with the lease, seriously consider getting rid of garden beds.
If you’re considering renovating or developing the property, try and be realistic about the timeframe you can do this in, and don’t factor that potential into the price you’re willing to pay. Developing a property takes time, so you need to make sure that if for some reason you can’t get to that work, the property is still worth what you’re paying for it.
4. Follow the money
The more people in an area, the more the demand for property and the more prices will go up. That’s basic market economics. Before purchasing, look at projected government spending in the areas near the property you’re looking at. However, it’s important to remember that a forecast is just that, and government promises and funding can disappear overnight. If you have a brand new property all ready to go and the money still hasn’t come through, it’s going to wind up coming back to bite you. Tenants prefer new properties, and if you’ve mistimed your investment, you’ll have to drop your rent to remain competitive against similar, newer properties.
The strongest indicator of how much a place is likely to grow is how much money is already being spent there to improve infrastructure (such as rail, hospitals, airports etc.). The more ambitious and costly these projects, the more likely the area is to grow. If that money is already being spent, chances are that people are already looking to move there, so the market is ripe for investment.
Remember, if you’ve identified somewhere as a strong growth area, it’s likely you’re not the only one, and not matter how much growth is coming, oversupply is going to affect your profit margin. The most important thing to remember is to not buy into the hype and to do your own research. There are myriad reasons why, even with infrastructure spending, an area may still fail to take off, causing your property value to stagnate. If you need to consult with an expert to answer your questions, it’s probably money well spent.
5. Go low maintenance
No one wants to buy a property and find out after the ink has dried that there’s a serious structural problem that needs addressing before it can be rented. Make sure that the property passes building and pest tests easily (not just scraping by). If there’s a problem, make sure to negotiate a lower price to make up for needing to fix the problem, but don’t be afraid to keep looking for a property that better fits your needs if the current owner won’t budge. Buying a property is stressful enough, you don’t want to buy trouble as well.
If you purchase a property that’s ready to be rented nearly immediately, you’ll maximise your income right out of the gate. Not only does maintenance and renovation cost money, but it also takes up a lot of time, and every hiccup in that project means less time with tenants in the property.
Not only will a ready-to-rent house make it easier for you, but your tenants will be happier as everything will be in good, working condition.
It might feel like there are a lot of ways to miss the mark, but with property being a mid-to-long term investment, it’s worth making the right decision up front. It may take longer to find the right place, but it’s more likely to assure you of continuous tenancy and low maintenance costs, as well as healthy investment gains over time. Good luck, and happy house hunting!