Property investment 101: Common types of investors and properties

What goes into a property research?

This step in your investment journey could be a lot of things, depending on your goals, capabilities and limitations as an investor, but it will never be simply logging on to your computer and searching for a list of properties for sale within your area.

In fact, property research rarely starts with looking for a house to buy. Understanding property investment entails encompassing research – from the economic drivers of the market, its movements and level of supply and demand to the right location, the perfect type of property and the different ways you can access funding for your growing portfolio.

Once goals are set and the investor is familiar with the ever-changing property market of Australia and its “suburbs within suburbs”, it’s time to get to know themselves as an investor and the type of property that will match their needs, capabilities and limitations.

Types of investors

Depending on the investor’s goals, they are likely to fit one of these common types of investors in the property market:

1. Landlord:

Considered the most common type of investors, landlords commit to property investment for the long term in order to enjoy the benefits of capital growth, rental income and tax offsets.

2. Renovator:

Also referred to as “flippers”, renovators seek properties that can be renovated and sold for a profit within a short period. Improvements must be strategic in order to avoid overcapitalising and overestimating the profit margin on the sale of the property. Consider establishing a time from purchase to sale and engage professionals to avoid costly mistakes.

3. Non-residential:

This involves purchasing property trusts, security funds and syndicates and may be applicable to retail, commercial and industrial real estate. As it is often more complicated than residential real estate investing, engaging professionals is highly recommended.

Types of properties

There will also be different types of properties to choose from. The investor’s choice must naturally be in line with their personal and financial goals and chosen investment strategies.

As they seek the first property to add to your portfolio, investors must consider structural integrity, building materials, size, landscape, renovation potential, design and climatic conditions to ensure that they are getting a good asset.

They may also create their own property checklist which indicates a specific criteria, including number of bedrooms and baths, facade and even price range. Separate negotiables and non-negotiable to further narrow down options. As investors go along, experts recommend diversification of assets in order to maximise the potential of your portfolio.

Some of the most common property types to choose from are:

1. Home vs unit/apartment:

Houses are more flexible in terms of design and renovation potential as they are typically larger than apartments. Under sole ownership, it will also provide more flexibility in terms of regulations for tenants and other use of space. However, it could be more expensive and harder to clean and maintain owing to its size.

On the other hand, apartments are more affordable and easier to maintain. In fact, in most cases, building maintenance will be the responsibility of the body corporate and the investor need only to worry of the upkeep of their own unit. Apartment buildings also offer a range of amenities like swimming pools, gyms and parking spaces. However, the smaller space may be less appealing to some tenants or buyers. Being under an owners corporation will also limit the investor’s ability to personalise the unit because you have to seek approval for any modification of the asset. Privacy may also be limited and noise prevalent due to the crowded nature of apartment buildings.

2. New vs old:

New properties are low-maintenance, which will help the investor save on major repairs and maintenance costs for years. Moreover, government grants and tax concessions are generally more available for the purchase of new properties. The modern technologies and contemporary designs are also likely to attract buyers and tenants. However, new properties can be more expensive than established properties. The investor may also have limited opportunities to add value through renovation, thus limiting their ability to achieve capital growth within a short period.

On the other hand, established properties are more affordable and carry the benefit of a renovation potential. Negotiations are more open for this type of property as well. However, the investor may have to deal with higher maintenance costs. It could also be less appealing compared to the new properties that it will be competing with in the market.

3. Off-the-plan properties:

Buying off the plan allows the investor to secure a property at the current market price through deposit, then they can pay the remainder at settlement, usually once the build is complete. This purchase will be ideal in a growth market, where the value of the property is likely to increase significantly between the payment of deposit and settlement date.

Naturally, buying sight unseen also comes with risks, such as the lack of guarantee that the development will go ahead and the market will follow an upward trend. If everything goes well, it will still take longer to benefit from the returns of your investment. Experts strongly advice seeking legal assistance to review contracts and ultimately ensure that you will be getting your money’s worth in due time.

Property checklist

Apart from making sure that the property has no structural defect, contamination and other hazards that may eat into your capital, harm tenants or damage its wealth-creation potential, here are other factors investors should consider when choosing an investment property to purchase:

✓ The asset has a purpose – for yield, capital growth, renovation or other strategic plan that is a part of your long-term strategy.
✓ The asset is well-located, with significant infrastructure, a growing population and other growth drivers.
✓ The asset is fairly priced based on comparable sales and professional valuation.
✓ The asset’s cost-benefit analysis is fair as assessed by yourself or other property experts.
✓ The asset will not be a burden to hold for the long-term considering your budget and lifestyle.