Quality and Return on Investment
We often talk to investors who will only consider investment properties for rental that have a certain return on investment (ROI) or a specific yield. While ROI and yield are important factors to consider, there are so many other factors to consider when purchasing a long term investment property.
1 - For an apartment, is the rest of the building in good condition and is the building being well maintained? If not, there is potential to purchase a problem - it is relatively straightforward to renovate the interior of the property, but taking on a building with problems can be a much more difficult problem that can prove to be almost impossible to solve and very costly.
2 - Is there good demand to rent the property? A return can look good on paper, but to make it happen, there needs to be strong enough demand to rent the property. Gaps in tenancies will significantly reduce ROI and yield. Researching the market over time and talking to local letting agents before purchasing can help to understand the rental demand for different property types in an area.
3 - What type of tenant will the property attract? Every landlord is looking for long term tenants who will look after the property. Sometimes that can be happen simply through luck, but it is always wise to research the local market to understand what type of tenant will want to rent the property and for how long.
4 - Will the property hold its value and appreciate in value over time? To get a positive answer to this question, it is generally best to invest in areas that have a good reputation. Researching government and local authority plans to invest in infrastructure and facilities can also provide a good indication of whether an area will continue to prosper or perhaps even be an area that is ‘on the up’.
To regularly acquire investment properties that will generate the strongest ROIs and yields, and also get positive answers to the four questions above can be challenging and at times unrealistic. We often advise our clients to focus more on points 1-4 when in the market for a new property - over time, this approach will help investors to build a strong portfolio for the long term.