Investments of any kind have an element of risk, so being prepared is a critical key to success. Investing in property no exception, however, while it can offer a strong risk/return profile it is highly illiquid therefore strong consideration should be made when buying property. Most important, it is essential to understand the local property market, the specifics of the property, and type of tenants and rental returns achievable.
Here we will look at ways to evaluate property you are interested in.
Evaluate the Area
Where to begin when evaluating a property? Well firstly, in the area it resides. You need to know the mid to long-term developmental plans for the area. What is currently a family home surrounded by open fields, could soon be a new development of flats and townhouses. A flat with fantastic views may soon be blocked by the next high-rise in the pipeline. The local area can have a significant impact on the valuation of a property and its long-term profitability. It is essential to carefully check the ownership, current type and expected utilization of neighbouring zones, establishments, and undeveloped land in the region as well as significant infrastructure plans.
Evaluate the Profit
Whether you require funding or not, properly evaluating the property you are interested in can help you understand the investment involved.
Breaking information down into specific reports makes it clearer to understand and evaluate better.
• Sales Comparison Report – Evaluating the local sales and active listings on the market that are similar to your property. Homes with the same room numbers, square footage and outside space. This creates an idea of sales over a period of times and seasons.
• Costs Report – Evaluate the costs for maintenance, taxes, and depreciation in the market. If you are purchasing an old property you will also need to calculate the costs of bringing the property up to required standards, if necessary.
• Income Report – Evaluate the expected income (monthly rent) and regular outgoings to create a cash flow statement to estimate the level of profit you could make.
Evaluate the Property
When investing in an old property it is necessary to know the condition of it, in order to assess costs needed to update to required levels. Items such as the gas safety certificate, quality of the windows and functionality of the heating are all responsibilities of a landlord. Some investment homes may need a refresh in the decorating in order to appeal to tenants, the costs of which will need to be evaluated in a costs report. If there is outdoor space, this may require a clean-up to guarantee there are no safety issues such as potholes, dangerous vegetation or wildlife.
New homes need a thorough inspection as well, as they can sometimes come with their own issues, especially when purchasing from a new or smaller developer. Be sure to confirm if the lease has any restrictions on subletting, restrictions on the occupant (tenants) activities within the property and even the type of decorating allowed. This way you can calculate the type of individuals to appeal to, and if they are outside of your current client base, create a strategy to attract a new clientele.
Property investing will always be a viable option for its relative passive source of income and ability to get mortgage financing against it. However given the significant cost outlays (even for just the equity portion), it is important that investors effectively analyse and assess the risks in order to reap the rewards.
At Onyx Property Consultants we can help you locate and evaluate the ideal investment property for your portfolio. Contact us today to set up a call and discuss your needs.