Investing in real estate can be a smart financial move, but it requires research and a solid understanding of the property market. When buying an investment property in Perth, here are the top five factors you should consider to make a wise decision.
1. Location
One of the golden rules of real estate is that location is everything, and indeed, in Perth, some suburbs are better for investment than others. The long-term appreciation potential and not just the immediate value of a property can be obtained from the location. When picking a location, consider the following:
- Proximity to amenities: Properties near schools, hospitals, parks, shopping centers, and transport links usually attract more tenants.
- Future development plans: Find out whether the local government has planned any infrastructure projects in the near future. A new train station, road renovation, or commercial building can drive property prices upwards substantially in the area.
- Neighbourhood growth: Consider areas where older homes are being renovated and new businesses are opening up. Suburbs in Perth that have experienced strong growth due to infrastructural development among other factors include Cannington, Rivervale, and Baldivis.
Read our article on Where To Buy An Investment Property in Perth to find out more.
2. Rental Yield and Vacancy Rates
Before purchasing an investment property, it’s important to evaluate the potential rental income and the vacancy rate of the suburb. Rental yield is the annual rental income divided by the purchase price of the property, expressed as a percentage. A good rental yield will offset mortgage repayments, together with other holding costs.
- High rental demand: The areas with the lowest vacancy rates mean high demand for rentals or apartments. Popular suburbs for tenants are normally close to major employment centres or educational institutions.
- Rental growth: Research if rentals in that area have been growing and could ramp up your yields in the future.
- Tenant demographics: Consider who your potential tenants could be; families, young professionals, and students to make sure the property matches their needs.
Suburbs in Perth such as East Victoria Park, Joondalup, and Leederville are known for strong rental demand, offering solid returns for investors.
3. Property Condition and Maintenance Costs
A key factor of property likability, and further capital growth in the future, is based on the condition of the property. A property that requires extensive repairs or maintenance can affect your profit.
- Structural soundness: Ensure the property is free of major structural problems. Have the building inspected by a professional to uncover any potential problems such as faulty wiring, plumbing issues, or roof damage.
- Age of the property: While older homes may have character, they can also have extra maintenance costs associated with ownership. Consider how much you would need to invest in repairs and renovations.
- Upgrades and improvements: A well-maintained, up-to-date property will generally attract higher rents. Upgrades, such as new paint, new fixtures or energy-saving appliances, will go a long way toward appealing to renters.
Properties needing constant repairs will impact your cash flow and profit margin. You want the property, preferably in decent condition with minimal need for costly upgrades.
4. Capital Growth Potential
Capital growth is the increase in the value of the property over time. As necessary as rental income is, a property that grows in value provides a greater long-term financial benefit. Some of the factors that determine capital growth include:
- Market trends: The recent performance of the property market needs to be researched. Suburbs that have continued to grow over the past few years are likely to continue in appreciation.
- Demand and supply dynamics: Areas with limited housing supply but strong demand (such as those near universities or major employers) are more likely to experience price appreciation.
- Future prospects: The suburb’s long-term growth should be taken into consideration. A suburb with strong population growth and an increase in job opportunities is ideal.
Historically, suburbs like Scarborough, Mount Lawley, and Subiaco have shown good capital growth in Perth due to their location and demand for housing
5. Affordability and Financing Options
Finally, it’s important to assess your financial situation and the affordability of the property. The real estate market in Perth can vary significantly from suburb to suburb, and your budget will eventually be what determines which properties are within your reach.
- Financing options: Understand the types of mortgages, interest rates, and repayment terms or investment loan structures. While many investors take an interest-only loan as this provides the maximum cash flow, understand the long-term implications.
- Deposit requirements: Understand how much deposit is required to secure a loan. Some lenders will require a larger deposit for investment properties compared to owner-occupied homes.
- Ongoing costs: In addition to the purchase price, consider ongoing expenses such as property management fees, council rates, insurance, and maintenance. This can again affect your cash flow and, in turn, return on investment.
Buying investment property in Perth requires careful research and consideration of multiple factors. By focusing on the location, rental yield, the state of the property, capital growth, and your budget, you can increase your chances of making a successful investment that delivers strong returns over time.