Choosing the right investment property

There’s been a significant amount of discussion recently about the pros and cons of purchasing small, one bedroom apartments as an investment.

This discussion is interesting, because a long time ago, you wouldn’t even consider buying a one bedroom apartment – they just weren’t appropriate properties for most people.

Now, as the market suffers from a shortage of medium density development, banks have changed their rules a little and will lend for these types of purchases. Banks still hesitate to lend for some of these smaller properties, which is a similar issue that buyers of discretionary lifestyle properties can run into.

Banks are cautious about these types of dwellings as there will almost always be a minimal number of purchasers interested in purchasing them.

It’s for this reason that I believe you should buy at the top end of the first home buyers market and the bottom end of the second home buyers market.

This is because by purchasing a mid-range property, you’ve got multiple layers of buyers who could buy the property when you choose to sell.

Another ongoing discussion which I’ve been observing and participating in is that of the decision to buy a holiday home – whether as a lifestyle property or as a dual-purpose lifestyle and investment purchase.

When considering purchasing a holiday home, it’s important to remember that holiday homes are a discretionary spending area that is hardest hit following instability in the economy and a drop in property values. This is because when faced with the choice of selling their holiday house or selling the family home most people will try to sell the holiday house.

When they do list, they’ll then find themselves in a highly competitive market, competing against many similar properties that have been listed by owners with similar reasons for selling.

This is why I caution holiday home investors carefully budget for their purchase – especially if its viability is going to rely on expected rental income from leasing the property. Any expected rental returns in this instance can be diminished by many factors you can’t control such as the weather, a general down turn in the economy or a natural disaster striking the surrounding area.

It is for this reason that I believe people relying on a rental income stream from their holiday home should maintain a sizeable cash buffer to protect against unforseen events.