Investing in the housing market

5 Ways to Avoid Buying A Lemon of an Investment Property

When investing in the housing market, everyone is out for a bargain. Of course, you want the biggest return on your investment you can find, but there can be a fine line between nabbing a true bargain and getting hampered with a lemon.

Not everything that’s wrong with a home is evident at first glance. It may be even less apparent to an inexperienced eye. If you’re investing in the housing market, buying a lemon can be a costly mistake. With that in mind, let’s look at how to ensure you make a sound investment.

Professional middle-age man, looking at home laptop

Do your homework

This is the most important step and the one that most often gets forgotten. Research the area you are buying in and get at least two local real estate agents to conduct a rental appraisal. They will do this for free! Find out what the potential rent will be, current vacancy rates and the type of tenants you’re likely to get. How many other developments are in the area? What is employment like in the area? All this is easily researched and will provide you with facts to make an informed decision. Never just rely on the word of the salesman selling you the house!

Do the math

Always buy an investment property that fits comfortably into your budget. Work out your mortgage repayments and the rental income. There’s no point investing in the housing market and spending more than you’re capable of servicing comfortably. Consider any shortfalls you might need to make up. What will you do if you the property sits vacant for a couple of weeks? Allow for insurance, rates and ongoing repairs. Make sure you budget for all expenses.

Think about liveability

Many builders and agents are focused on the 4 x 2 x2 rule (4 bedrooms, 2 bath, double garage) above all else. This formula is applied to a home no matter the cost. Usually, it’s at the expense of living space. There’s little point sticking to that rule if it means the bedrooms in the house are pokey with living quarters uncomfortably compact. When you’re investing in the housing market, think about what tenants want. A tenant is looking for a home they are going to feel comfortable in. Not everyone needs four rooms. Prioritise spaciousness and liveability over a formula that doesn’t suit everyone’s needs.

Don’t accept average

Just because it is an investment property, doesn’t mean you shouldn’t look for something outstanding. You want something appealing, modern and fresh. A good designer will provide this. The street appeal is often the first impression for a potential tenant or future buyer and can make or break a rental or a sale.

Buy from a builder not an agent

Vendor and buyer shaking hands to handover home

When investing in the housing market, if you’re not buying directly from the builder, you’re paying for a middle man. The middle man, usually an agent, has a vested interest in selling the property because they receive a hefty commission from each sale. This means they’re less likely to be upfront with you about any issues that may not be readily apparent. Buying an investment property from the builder means you’re speaking to the person who will build the home. They know every last detail about it. Additionally, since it’s likely to be a new build, it will be covered by the builder’s warranty giving you added protection.