The difference between building an investment property and a dream home is stark; one is all about the bottom line and the other is closer to the heart.<\/strong><\/p>\n So when it comes to building or renovating a property with the goal of renting it out, investors need to be aware of the distinction.<\/p>\n Melbourne-based buyer\u2019s advocate and qualified property investment advisor, Cate Bakos, explains what to keep in mind when a property will be rented.<\/p>\n First, consider the \u201ctarget tenants\u201d, she says. \u201cMaking sure the property will appeal to the demographic of the area is critical. There is little point in creating a floor plan or finish that will be hard to rent out,\u201d Bakos says.<\/p>\n Consider your target tenants when building an investment property. Picture: Golden Age Group<\/p>\n<\/div>\n \u201cUnderstanding which housing<\/a> features have strongest demand and particularly those which are more scarce, but sought-after in the area, is clever,\u201d she adds.<\/p>\n The number of bedrooms matters, but more isn\u2019t automatically better. \u201cMaximising rent (with more bedrooms) is great, but maximising the quality of the tenant and maximising the tenure is important too,\u201d Bakos says.<\/p>\n \u201cMore than three bedrooms often equates to larger families, and with larger families comes more wear and tear, so taking into account the ongoing maintenance of such a property is important too,\u201d she says.<\/p>\n Style-wise, don\u2019t assume a neutral palette is always best, Bakos says.<\/p>\n \u201cNeutral doesn\u2019t necessarily attract the right tenant. Being familiar with the character of a suburb can help with personality-matching the property with a tenant who could be the perfect long-term tenant,\u201d she says.<\/p>\n This industrial-style living room with exposed brick would appeal to inner-city suburbs. Picture: realestate.com.au\/buy<\/p>\n<\/div>\n In an area that commands high-end finishes and quality interiors, skimping on build costs can ultimately be costly, Bakos explains.<\/p>\n \u201cLikewise, over specifying finishes in more \u2018affordable\u2019 areas can lead<\/a> to disappointment when the market can\u2019t meet the asking price,\u201d she says.<\/p>\n Investors need to be prepared to overhaul cosmetic features every 10 to 15 years, to keep the property as \u201con-trend\u201d as possible, Bakos says.<\/p>\n \u201cA tired or dated property can work against an investor when the property is competing against newer, shinier options.<\/p>\n \u201cCommanding the highest rental is contingent on providing a property that a local tenant would choose to rent, as opposed just afford to rent,\u201d Bakos says.<\/p>\n Keep your investment property on trend in style. Picture: realestate.com.au\/buy<\/p>\n<\/div>\n The biggest rookie mistakes Bakos sees with people building investment properties relate in some way to poor planning.<\/p>\n \u201cThe first is people building their own \u2018dream home\u2019 to their own tastes, despite it being an investment property or building in their own familiar surrounds without consideration of what the target tenant market commands,\u201d she says.<\/p>\n The second is \u201cover specifying\u201d and over capitalising, resulting in lower rental returns.<\/p>\n Believing that building is always cheaper is another rookie mistake, Bakos says.<\/p>\n \u201cGoing into a construction project requires due diligence and a good line of conversation with local planners, or better yet, a specialist planner, draftsman, or architect to help with the planning phase,\u201d Bakos says.<\/p>\n The financial side can also trip people up. \u201cSome people misunderstand that the rate of depreciation can often override the rate of appreciation in the early years of ownership. This can lead to a negative growth position in the first few years in some cases,\u201d Bakos says.<\/p>\n
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