What Makes A Good Investment Property?
It’s no secret that Binvested founder Nathan Birch has amassed a portfolio of more than 200 properties over the past couple of decades.
An incredible amount of hard work, research and deal-making has gone into getting to this point.
But he has also been helped along the way by sticking to three key criteria for figuring out whether a property is a worthwhile investment or not.
In turn, he uses that criteria to help clients achieve their own property goals.
Make money on the way in
A property may look great, have great tenants, be in a good suburb and have various other things going for it, but there’s no point paying more than what it’s worth, or even bang on what it’s worth.
You need to get it for below market value.
If you can do that, you create room for growth and in many cases lightning fast equity that can be pulled out and used to buy your next investment property.
Whether you are buying at the bottom of a market cycle, or are able to secure a property off market, or even a home with great bones that’s in need of a superficial renovation, a below value deal is a brilliant way to lay the foundation for creating a bigger portfolio.
You have equity when the market is growing and a buffer if the market does experience a value drop.
You may not know how to crack a deal like that, but the good news is that if you’re a Binvested client, you have access to the database of contacts Nathan and his team have built over time, as well as his experience-based knowledge and reputation with real estate agents for being a genuine buyer.
Many agents go straight to Binvested with property deals because of this.
The next key is that the property is positively geared (neutrally geared at worst).
What this means is that the rental income you receive from your tenants covers your mortgage repayments, property management fees and other associated costs and leaves you with some leftover cash.
This ensures you are not having to find extra money to cover the weekly costs of an investment property…money that could be put to better use elsewhere.
Not only should the property be positively geared, but it should appeal to a large pool of tenants.
That way, your funds won’t be eaten into by costly vacancy periods should your current tenants move on or break their lease.
Properties at the affordable end of the market are good for encouraging steady demand from tenants, because that’s the level a lot of renters are at. A family home worth $300,000 in a regional area or in the outer ring of a capital city is more likely to command $400 a week in rent than a $2 million house getting $2500 a week, as the need and demand for the former is far greater than the latter.
Finally, the property needs to have a good upside for growth. Once again, properties located near major cities or big regional areas, but at the affordable end of those markets, can be sound choices. As inner suburbs grow in value through multiple property cycles, the ripple effect means neighbouring suburbs generally follow suit.
If you think about it, a $300,000 property is likely to double in value a lot faster than a $1 million property, so if you are able to leverage equity and accumulate a portfolio of the cheaper properties, there is more upside for long term growth.
Time in the market is important, therefore timing the market is important. If you can purchase below value and before a market growth cycle, your property will be positioned for maximum upside.
If your strategy is long term wealth accumulation, you can hold that property forever.
Being positively geared, it will eventually pay itself off and will then be an unencumbered asset returning rental income and further value growth.
The key to success when building a property portfolio is a solid strategy.
Buying a property is only a small part of the picture, there are many other elements to building a successful and profitable property portfolio.
If you need help mapping out your strategy, Nathan can assist you in gaining clarity on how might be best for you to move forward towards your goals in relation to your current position.
Because a strategy needs to be personal to you: there is no one-size-fits-all solution.
Book your MAP session today and talk to Nathan about how you can use property investment as a vehicle to creating wealth.