Property Investment - Researching The Location
It's always wise to have an idea of what type of property you're
looking for when considering an investment and this article
outlines 8 of the different factors to consider when researching
specific locations.
1. Infrastructure
It's important to consider a town's infrastructure when looking
for an investment property, especially in terms of what future
investment is to be made in that area.
Local Authorities and Councils will have an annual budget for
both the maintenance of current infrastructure and also for the
construction of new infrastructure projects. Finding out how
much the annual budget is and future investment will give you an
idea of how proactive the authority is in attracting new
residents, extra funding and business opportunities.
Most councils will be happy to provide most of the information
and a lot of it will appear on their websites. Also look at the
websites of local big businesses to get information on their
future plans which will attract investment and create new jobs
in the area.
2. Proximity to Amenities
In most cases, the main purpose in buying an investment property
is to attract tenants who will pay a weekly or monthly rent.
It's important to know what type of tenants you are looking to
attract and so any potential investment property will need to be
close to the amenities required by the tenants. A city worker
will want to rent a property close to shops and transport
whereas a farmer will have different requirements.
Most properties in close proximity to the town will rent fairly
easily compared to those which are a 15 minute drive outside of
the town. Properties close to the town will also attract tenants
who don't have their own transport.
So it's best to know what your tenants requirements will be
before you purchase.
3. Local Employers
It will always be easier to find tenants in towns where there
are large employers in the vicinity. These include factories,
large shopping malls, hospitals and universities.
With hospitals, many of the employees may be employed on a
temporary basis and so owning or buying their own property in
the area may not be a choice for them and renting is the easier
option. Also, in the case of universities, a lot of the students
will come from out of town and so renting is again the best
option. This offers them more flexibility however it also means
that your investment property could be vacant during certain
months of the year and may switch tenants on a regular basis.
Again, be sure to research the future plans of these employers.
If a major employer is due to shutdown or relocate in the near
future then there will be a glut of empty properties with
landlords doing whatever they can to fill them including
drastically reducing the rent.
4. Geographic Location
This will determine both the type of tenant you get and also how
easy your investment property will be to rent out.
Holiday properties near the ski fields will command a higher
rent than a property in the city however it may only rent out
for a few weeks per year. A beach house will also be in the same
position. Again, it's important to understand the type of
tenants in the area, what they are looking for, how much they
are willing to spend, etc.
A beach house may command a high rent but may only attract
retirees who are willing to pay top dollar and so this narrows
the number of potential tenants. Properties closer to cities and
amenities will likely attract a higher number of tenants willing
to pay a lower weekly rent.
5. Demographics
Spend time understanding the demographics of the areas
population and you will have a better idea of the type of tenant
you can expect.
Find out the populations' average salary, the different age
brackets, percentage of those married and single and the
percentage of the population that rent.
The demographic information will show if the town's population
has been growing or declining over the past number of years and
therefore if an investment is a safe bet. It will give you an
idea of the earning capacity of tenants and how much rent you
can expect.
It may also show movements of parts of the population to new
parts of the same area due to factory closures, increase in
crime etc.
6. Property Median Prices
Historical property prices will be a good indicator to the
fluctuations in property values in the area over time.
A property may look like a bargain at first glance but with a
little research you may discover that the same or similar
properties changed hands previously for a lot more money. There
may be a simple explanation for this such as a vendor wanting a
quick sale but it may also reflect a dive in the local property
market for various reasons.
Median prices will give an indication of what you can expect to
pay for the different types of properties (no. of beds, land
size, etc) in the area and the figures may also show the number
of recent sales. The historical figures will also give a pattern
of historical growth or decline in the area over time and this
could be used to indicate a property's future value.
7. Occupancy/Vacancy Rates
Each area will have a certain percentage of rental properties
tenanted (occupied) and the remainder without tenants (vacant).
Towns with a high vacancy rate (normally deemed to be more than
4%) will make it possibly harder to find tenants to fill your
rental property as it shows a lot of competition for too few
renters.
Too few renters will also mean that landlords will have to be
more creative in attracting tenants and may need to reduce the
rent and offer other incentives to entice renters.
Areas with high employment and a strong outlook for the future
are likely to have a higher occupancy rate and this may even
cause competition amongst renters, allowing landlords to set
higher rents.
8. Property Managers
Finding a trustworthy property manager is important if you will
not be looking after the property yourself in terms of finding
tenants and collecting the weekly or monthly rent.
Good property managers will communicate regularly, carry out
periodic property inspections, arrange repairs and, most
importantly, regularly deposit the rent (minus expenses) to your
bank account.
There are also many other duties a property manager can carry
out and it's important to question those managers in the
potential area to find one or more likely candidates that are
going to take care of your investment.
Find out how many rental properties they manage, how long
they've been in business and ay other questions you deem
necessary until you find one you are happy with.
In closing, the above points are only guides for you to learn
more about an area before you make an investment. There may be
more factors you'll need to consider depending on your situation
but if you research the above you naturally increase the amount
of knowledge you have about the area. And the more knowledge you
have will reduce the risk of a potentially poor investment.