What makes a good investment property?
Key indicators that real estate investors should consider
The trick with an investment property is to find one that is appealing enough to generate good rental returns in the short term while also having the potential to appreciate in value in the medium to long term.
Not all properties are created equal when it comes to investment potential. Knowing how to spot the potential for greater returns is the key to building a stress-free real estate portfolio.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, explains that determining what makes a good investment property involves analysing several key factors that contribute to both short-term and long-term profitability.
“Almost any home will generate a return on investment if the owner waits long enough for the property to appreciate in value. With an investment property, though, you will probably want to generate that return sooner rather than later,” he explains.
According to Goslett, the trick with an investment property is to find one that is appealing enough to generate good rental returns in the short term while also having the potential to appreciate in value in the medium to long term.
“It can be tricky to strike this balance. For example, if you get into a new market early enough, you will most likely be able to purchase the property at a good price. As the area gets more and more popular over time, house prices will increase, and the resale value of the property will climb. However, as it’s a new area, you might not be able to charge as much in rent as you would in a more established area,” Goslett highlights.
To consider
Apart from this, RE/MAX of Southern Africa highlights other key indicators that real estate investors should consider before going ahead with a property purchase:
Vacancy rates: Lower vacancy rates indicate a healthy rental market and steady demand.
Price trends: Analyse historical price trends in the area to gauge potential appreciation and compare similar properties in the area to determine realistic rental rates.
Cash flow potential: Account for home loan repayments, property taxes, insurance, maintenance, management fees, and any other recurring costs against the potential rental income.
Economic growth: Regions with growing industries, increasing job opportunities, and population growth tend to see better property value appreciation and higher rental returns.
Future Development: Locations slated for future infrastructure developments or urban renewal projects often see property value increases. Find out about the nature of the development first, as not all developments will be appealing (e.g., there are plans to set up a power plant nearby).
“A good investment property is one that offers a blend of favourable location, positive cash flow, and appealing appreciation potential," he said.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, explains that determining what makes a good investment property involves analysing several key factors that contribute to both short-term and long-term profitability.
“Almost any home will generate a return on investment if the owner waits long enough for the property to appreciate in value. With an investment property, though, you will probably want to generate that return sooner rather than later,” he explains.
According to Goslett, the trick with an investment property is to find one that is appealing enough to generate good rental returns in the short term while also having the potential to appreciate in value in the medium to long term.
“It can be tricky to strike this balance. For example, if you get into a new market early enough, you will most likely be able to purchase the property at a good price. As the area gets more and more popular over time, house prices will increase, and the resale value of the property will climb. However, as it’s a new area, you might not be able to charge as much in rent as you would in a more established area,” Goslett highlights.
To consider
Apart from this, RE/MAX of Southern Africa highlights other key indicators that real estate investors should consider before going ahead with a property purchase:
Vacancy rates: Lower vacancy rates indicate a healthy rental market and steady demand.
Price trends: Analyse historical price trends in the area to gauge potential appreciation and compare similar properties in the area to determine realistic rental rates.
Cash flow potential: Account for home loan repayments, property taxes, insurance, maintenance, management fees, and any other recurring costs against the potential rental income.
Economic growth: Regions with growing industries, increasing job opportunities, and population growth tend to see better property value appreciation and higher rental returns.
Future Development: Locations slated for future infrastructure developments or urban renewal projects often see property value increases. Find out about the nature of the development first, as not all developments will be appealing (e.g., there are plans to set up a power plant nearby).
“A good investment property is one that offers a blend of favourable location, positive cash flow, and appealing appreciation potential," he said.
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