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As life inevitably changes, a property may need to fulfil a variety of purposes. Evolving circumstances, like a new relationship, a baby or a job transfer can cause buyers to re-evaluate a purchase.

Therefore it may be ideal to buy a primary residence that can be rented out and converted into an investment.

An investment property that has a strong rental yield is always underpinned by the qualities that made it a desirable owner-occupied home in the first place, according to agents.

Agent and auctioneer Greg Hocking said renters wanted the same characteristic in a property that was sought by an owner-occupier.

“People buy a house for a personal reason, so is it suitable [as a rental] is the question,” Mr Hocking said.

“Location is first and foremost, then, will it require significant ongoing maintenance? And generally speaking, the closer it is to the inner-city rim, the better capital growth.”

Swimming pools and verdant gardens, as well as decorative exterior finishes, can marginally boost the rental value, but at the same time add enormously to the cost of upkeep, he said.

The combination of capital growth and solid rental return is the Holy Grail of acquiring a home that will later be a rental investment

Agents say a position near schools, shops, doctor surgeries and public transport, as well as a property that is easy to maintain, is a recipe for a good rental return.

But perhaps the most important factor – and the least known – is that two bedrooms, no more, no less, will attract the right sort of renter. It’s the real estate baby bear equivalent in the Goldilocks story – two bedrooms are just right.

Kay & Burton senior executive portfolio manager Mikhala McCann said two bedrooms was the magic number that translated to keen interest from an ideal demographic.

Three bedrooms often attracted groups of young singles and one bedroom was limiting in its appeal, Ms McCann said.

However, two bedrooms will attract young professionals and couples who require room for a study or are planning to have a baby, and therefore tend to be long-term renters who look after the property.

Ms McCann said a neutral colour scheme would also be in demand with tenants who, unable to make alterations, were often unwilling to put up with flamboyantly toned feature walls or other flourishes that reflected an owner’s personal taste.

“When you are a tenant, the legislation says you cannot change anything, so those little things that as an owner wouldn’t worry you because you can eventually change, will impact tenants,” she said. “They want something neutral that they can bring their own style to.

“If you do have a garden or a pool, the cost of upkeep should be built into the rent so it is protected and maintained.”

Rae Tolley, manager of the property management department at Beller Real Estate, said owners should ideally refresh an investment house between tenants.

She said older properties were competing against the glut of glossy new apartments on the market.

“The average tenant stays for two years-plus, so things do wear out over that time,” Ms Tolley said.

“There is an abundance of new properties, so you have to keep refreshing your property and adding to it, and you should have an improvement plan.

“Going back to that oversupply, properties that don’t have a freshen up at the change of tenant are often vacant for longer, and a good property manager will come up with a plan of things that need to be done with the change of tenant so the owner can draw up a financial plan.”

An easy-to-care-for property will tick the boxes of tenant appeal and ensure a hard-earned investment does not deteriorate.

“It is very hard for tenants to maintain it in the way you would because there is an element of disconnect, that aspect of separation,” Ms Tolley said.

Bayside Frankston, at the gateway to the Mornington Peninsula, and inner-city Footscray and Seddon have been nominated by agents as smart-buy suburbs for residences-cum-investment properties.

Coburg and East and West Brunswick, as well as working-class Glenroy, also offer strong rental returns. Those suburbs have older, larger blocks – tenants love space – and don’t experience long periods of vacancy.

Jesse Linardi, design director of dKO Architecture, said renters were chasing a lifestyle as much as buyers.

Mr Linardi designed and built a two-bedroom townhouse on South Street, Preston with the intention to live in it and then use it to kick off an investment portfolio.

He lived in the urban-style townhouse for about three years, and then moved on to his next residential project.

Mr Linardi, who rents a home in North Melbourne, has welcomed two sets of tenants in Preston over the past four years.

He said the contemporary features he valued as an owner and occupier, including open fireplaces, courtyards off the bedrooms and an abundance of natural light, have been as much in demand with his tenants.

“I always wanted to build my own house and I wanted to keep whatever I built for the future, so I always knew it would be rented out,” he said. “I got to the point where financially I knew that if I moved out and rented it out it would be self-sufficient.

“In the area where the house is in Preston, there is not a lot offering that is architecturally designed. They want to enjoy the space, whereas a lot of older properties on the market don’t offer those natural things like light and sun.

“Whether a home costs $300,000 or $3 million, people fundamentally want the same things.”

Mr Lindardi is building a five-storey townhouse for himself in Collingwood, with the aim to rent it out and continue to grow his property portfolio.

Handy Tips

* A top-notch investment property needs to have mod-cons, a good floor plan, generous living space, fresh paint and carpets and be easy to clean, said Rae Tolley. “It is important to have a dishwasher and air conditioner – a lot of properties that don’t have features like split system air conditioning are lagging behind in the market,” she said.

* Scarcity factor is key, according to Greg Hocking. Dime-a-dozen off-the-plan apartments are a danger zone. Mr Hocking said buyers could lose 10 to 15 per cent of their purchase price when the property was completed, but a period cottage or an art deco apartment would have the greatest capital appreciation.

* A garage or storage cage will add to the attraction, as transient renters need somewhere to stash their stuff, said Mikhala McCann.


Posted by Emily power- Domain (The Age) on 20th July, 2014