How to Assess a Property Investment Opportunity
If you’re considering investing in a property, you’ll know that it can be confusing, challenging and downright scary. When the stakes are so high, it’s always best to employ sound, measured judgement and be well-informed. Ron Bakir is the CEO of HomeCorp, a large urban planning and property development company with projects all over Australia. Tapping into his wisdom, here are some tips on how to assess a property investment opportunity:
As with any business venture, researching the marketplace is essential. Basic conventions like demand and supply are easy to understand and scope out. Contact as many real estate agents as you can, read online suburb profiles and even ask for advice from any friends or family members who are seasoned investors. Understanding projected trends and noting past performance is also a great way to ensure that you are fully aware of what you are getting yourself into. Ron Bakir’s first business venture as a mobile phone retailer came about after he read that mobile phone usage on the Gold Coast was the highest in the country. You never know which nugget of information will inspire you to make your move!
Get a Second Opinion
Don’t fall into the trap of relying on information provided by the property’s sellers. Not only is it lazy, but it can have very dire consequences. Seek out an independent, thorough evaluation of the property and its estimated value. You wouldn’t purchase a car based solely on a car salesman’s spiel, so definitely don’t do it with a property.
Do the Numbers
Now it’s time to look at the property itself. If you can’t afford to get a professional, third-party to provide you with an evaluation, there are a few equations and concepts that you should familiarise yourself with. Start with the one percent rule (will be the monthly rent be at least equal to one percent of the property price?), the capitalisation rate (annual net income divided by property price) and cash-on-cash return (annual net income divided by the initial deposit). In addition to the number crunching, also remember to consider any repairs that may be required. On top of all of that, make sure you can afford the loan.
For many investors, it’s all about the location. While this may not necessarily be true, you do stand to benefit if you take a long, hard look at the surrounding area of your property. Bear in mind the intended use of your property as you answer the following questions: Is it residential? Is it close to public transport? Are there schools or hospitals nearby? Is the area noisy and crowded? Are there any major road works or future planned projects? For Ron Bakir’s HomeCorp, a great investment is about having both a quality property and a quality location.
Hopefully you are now feeling more informed and equipped with ideas on how to approach your property investment. If you are still feeling confident about your property, that’s great. If this article has raised a few hard, albeit necessary questions, that can be a positive thing too. Be a wise investor. Please share any comments or thoughts in the box below.
Photo via Philip Taylor PT