Having low-risk investment property in your real estate portfolio has many advantages. With low-risk investments, you can minimise your losses while still benefiting from the rewards in the long run.
Read the article below to know six key things to look for so you can determine whether a property you're looking at is a viable low-risk property investment.
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If you're looking for a low-risk investment property, location is vital. Make sure to take at properties in cities with a thriving economy.
A city powered by active and diverse industries invites jobs growth in the area. Many job opportunities attract more people to live in the city.
As the population goes up in that city, you can expect property demand to go up, too. Investing in a city with high property demand means it will be easy for you to rent or sell your property and earn income.
Acquiring low-risk investment property doesn't just end at finding a city with a dynamic economy. Choosing a vibrant neighbourhood is also an important factor to consider when making real estate investment decisions.
When it comes to choosing properties, consider looking at the suburb or neighbourhood they're in. Here's a list of things to look out for in a suburb to know that the properties in it are a low-risk investment:
Investing in properties within a good neighbourhood ensures that you make a low-risk property investment with sizeable returns.
Another way to know that a home or unit is low-risk property investment is if it has a low price-to-rent ratio.
Price-To-Rent Ratio Definition: It is a property's median price value divided by its estimated annual rent charge.
You can use the price-to-rent ratio to tell whether it will be cheaper to buy or rent a specific property.
For example, properties with low price-to-rent ratios (15 and below) are generally tagged as low-risk investments because you can gain more from renting them out over merely purchasing them.
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After finding a city and neighbourhood with a booming real estate market, you then have to look at the condition of the properties there.
When choosing low-risk property investments, the best ones to select are those houses or units that don't need many repairs. Selecting a relatively new property means you don't have to spend too. Much on fixing it up, so you can concentrate more on earning from it.
Here's the rule-of-thumb in gauging a property's condition: the older the property is, the more repairs and upgrades it requires.
We recommend you choose properties that are at most 5-10 years old. These kinds of properties are new enough not cost you too many repairs, but can be easily upgraded to increase their value at a moment's notice. It's these kinds of homes that make for a low-risk investment property.
Another way to tell whether a property you're looking into is a low-risk investment is if it gives you positive cash returns.
Positive Cash Returns Definition: It is when the annual rental income you get from your property is higher than the expenses you incur to maintain it.
To compute for a property's cash return, divide the estimated amount you can earn from it by the amount needed to invest in it.
Many real estate investors agree that properties with at least an 8% cash return rate are considered low-risk investments, giving you higher returns later on.
Acquiring a low-risk investment property also means looking for an investment with a sound and viable exit strategy, just in case things don't turn out your way.
The home or unit you're looking to invest in shouldn't just be easy to acquire. It must also be easy to sell should it be more profitable for you to do so.
When you're looking to acquire low-risk investment property to add to your investment portfolio, make sure to evaluate each one based on the six critical factors listed above. This way, you'll be able to make an informed decision that best compliments your financial goals, budget, and investment strategy.
A9 Property is a team of property specialists helping first-time homebuyers and property investors on their journey into the real estate market. Our weekly real estate blog touches on industry trends, market shifts, and investment strategy, providing you with valuable insight into your property purchase journey. We are experts who specialise in off the plan properties–a popular investment strategy in Brisbane and Australia. Check out our carefully selected portfolio of off-market properties for sale or contact us for an obligation-free chat to discuss the best strategy to start building your portfolio.