Owning investment property isn’t like winning lotto. The not-so-secret truth is that successful investors put quite a lot of energy into making their investments work for them.
What makes a good investment property?
Not all properties are created equal. To find a good investment one you’ll have to look at a lot of properties. You won’t find good deals in the glossy section of the Saturday paper.
A good property is one where you make a profit. You can make a small profit on some properties from day one, but really your profit will come from its value going up. This will happen over time on almost any property, but can be a bit like watching paint dry. Instead, you can watch actual paint dry on a property that you’ve added quick value to with a simple renovation. Some other ways you can add value to your investment property are:
- buying property for less than its true value. This could be occasions where the seller needs to get out quickly or a mortgagee sale.
- solving a problem – resolve a code of compliance issue
Importantly, an investment property should pay its own way. You should expect a net yield of at least 6%. Net yield is the rent, minus your rates and other property costs, divided by the property value. Properties that you have to prop up with extra money (negatively geared properties) are harder to borrow against so will stop you growing your portfolio.
Most successful investors have multi-income properties with 2‐3 incomes per property. This is where you will find the best yields for a number of reasons:
- The property will probably have compliance issues you can fix. The seller will often have never intended to sell the house so didn’t bother getting it compliant.
- They might be facing cash flow issues so are motivated sellers.
- Multi-income properties will only appeal to other investors, which is a smaller and more rational market.
- Pricing is rational. The price should reflect the yield and most investors expect net yields in metro locations over 6%, which is a gross yield of 7.5%‐8%.
Home and incomes
A granny flat under your house can be an easy way into property investment. They make sense on so many levels and can also help you buy in an area you might not otherwise afford. It’s a great idea to look for actual grannies to live in your granny flat. They tend to value the security of having a family close by, are reliable and quiet and much more tolerant of family noise than other types of tenants. Good old nan.