It is crucial to conduct due diligence before investing in a rental home. Make sure you don’t miss a trick with these savvy questions
1. What’s being built nearby?
Your investment property can benefit or be negatively affected by new infrastructure projects. Find out what’s being planned and when it’s due for completion by logging onto www.infrastructureaustralia.gov.au. This site has links to all departments of state infrastructure planning.
2. What’s it worth?
A property’s selling price doesn’t mean it’s worth it. Invest in a property valuation – usually starting at around $350 – to assess the property’s true worth and then use that to negotiate on the price. An independent certified valuer can be appointed to evaluate the property’s worth before it is sold or bought. This will help investors reduce risk, negotiate the best price, and save money.
3. What’s happening in the local market?
What’s happening in the local area can directly impact the property market – either negatively or positively. What is the best way to find this information? You can find out by going there. Look around the area for retailers and evaluate whether there has been gentrification. It’s also wise to look at local demographics, crime rates and employment drivers in the area – take a look on the Australian Bureau of Statistics’ websites, www.abs.gov.au.
4. What’s the rental potential?
Just because an agent says a property will earn $400 a week in rent, doesn’t mean it will. Property portals such as www.domain.com.au www.realestate.com.auTo get an accurate idea of the rents on similar properties, ask an independent company for a rental appraisal. Renting appraisals will provide you with an accurate picture of comparable properties.
5. Are you looking for capital gains or rental returns?
It is important to decide whether you want capital gains or rental returns. If multiple investments are involved, the former should prevail. The rental income will help you hold the property but it won’t help you buy again. In the beginning stages of investing capital gain should be at the top of your list. It will allow you to purchase your second and third properties. If you look at high rental return and low capital growth, you’ll be sitting there a long time before you have any equity to do something else.
6. Do you think there is any competition?
Your chances of rental success will be reduced if the market is saturated with investors. Also, this will impact capital appreciation. To find out the percentage of houses that are owned, contact your local council. Be cautious when you live in large apartments blocks. You must check that the spot isn’t an overused rental area. If you’re buying in a large block, you can end up with both rental and selling competition if the market gets tough.
7. What’s included in the title search?
Don’t assume everything is included in the sale. Make sure you identify what’s for sale – including parking spaces and storage facilities – and ensure this is reflected in the title search. Sometimes developers don’t update things and if this happens, it can crash a contract and you could lose a lot of money. Ask for a Community Management statement. This will tell you how much storage is being allocated to your car parks.
8. What’s the state of the accounts?
The monthly maintenance fee for strata property plans is deposited into an account that can be used to pay for carpets, grounds, lifts and other expenses. Ask to see the Body Corporate Disclosure (it’s a legal right), which outlines exactly what’s been spent and what works are planned. Look at the minutes of strata meetings – these will tell you whether there are any structural problems such as concrete cancer or broken lifts. Check the sinking fund to verify how much it has and whether it covers any work.
9. Who’s your target market?
It’s essential you identify your potential tenants and know what they would be looking for in a rental property. If you’re looking at a property in a university town, you should be looking at a multiple occupancy homes near transport and amenities. If, on the other hand, you’re going for the family market, look for a large home, with a garden and spacious communal area.
10. What is the work involved?
A potential rental property should be good to go – taking on one in need of renovation will only delay the time its get to market. At the most, allow for paint work and furnishing and steer well clear of homes in need of structural improvements – you’re likely to lose a months rent before you even have tenants. Paved gardens are easier to maintain and require less maintenance. A management company will also be needed to manage the day-to-day operations.