The 3 Most Important Factors to Consider When Purchasing an Investment Property

Dilleen Property Group 2022

Buying an investment property and building a property portfolio can be a daunting experience if you don’t know what you are looking for.

There is tons of information out there with different strategies and procedures. But how do you know who is being truthful, who’s selling you a dream and who has the actual experience to back up their claims?

Today, I’d like to share 3 of the MOST important strategies and factors I always consider when buying an investment property for myself or one of my clients.

I personally own 42 of my own investment properties throughout Australia. I bought my first when I was 18 years old and had no help from family throughout the process.

My goal is to reach 1000 properties and I will be doing so by following these 3 key steps I’m about to share.

Number 1: Buying property below market value

The first KEY factor you must follow when entering into a property deal is ensuring it is below market value or below comparable sales. Buying below market value means the property is cheaper than other properties in the same area, of similar build and quality.

I personally aim to purchase properties 10%-25% below market value.

The reason buying below market value is so important when building a property portfolio is because it saves you money going into the deal. You could save 30-50k+ from the get go. If you think about it that’s another deposit for a property.

Additionally, it ensures equity is being built into the deal, which you can release after 3 – 12 months to use toward another property deposit. This way, you don’t have to wait as long for equity to build in the property as you already got it 10%-25% below what it’s worth.

Here’s an example of a property I helped a client of mine secure for $50,000 below market value.

Unfortunately for most, it can be difficult to get your hands on properties like this if you don’t have the right connections in the industry. This is why I recommend going to someone that does have these connections like an experiences buyers agent who specialises in this area of investments.

Number 2: Buying property with high rental yields

The second thing to consider when purchasing an investment property is ensuring the property has a high rental yield. Now, many investors think a 3%-4% is good. However, I personally believe that is much too low. I personally like to invest in properties with rental yields ranging from 5%-10%, depending on the market.

The reason why high rental yields are so important is because high cash flow properties can be extremely beneficial when building a property portfolio.

I like to invest in properties where the cash flow covers the loan repayments and leaves you with money to pocket at the end of the day. This allows you to avoid putting any extra money into the property, while helping you save up for the next deposit.

Additionally, high cashflow/yield can be helpful when going back to the bank for your next loan and helps to avoid getting stuck with finance along the way. The banks take your rental income into consideration on top of your yearly salary/income when approving loans.

It’s important to consider that high rental yields like these can only be sourced in some property markets within Australia. I personally am sourcing properties with these figures in Brisbane and Adelaide metro markets.

Number 3: Buying properties in growth locations

The third factor to take onboard when building your property portfolio is buying in a growth location. Unfortunately, a lot of people believe you must pick either growth or cash flow and that it’s not possible to purchase a property with both. However, this is entirely false. I focus on both factors equally.

You may be wondering where on earth you can find properties that meet all these criteria…

I personally look in Metro locations within affordable property markets like Brisbane and Adelaide. Metro, meaning 10km-40km from the closest CBD.

These metro markets have similar/the same growth as suburbs right next to the city. This is due to the growth ripple effect. Metro markets like these are fairly close to city and are affordable enough to have high demand. The population around these areas is quite high and there is major infrastructure in place.

I personally source properties in these metro markets for around the 200k – 600k price point.

Property markets like Brisbane and now Adelaide have undergone amazing growth rates and have even outperformed cities like Melbourne and Sydney, which many believe have much better growth.

 Click here to see some example of metro properties I’ve recently picked up for clients.

Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.