As an investor, the specification will have an impact on the performance of your investment.
Institutional investors and large bulk buyers typically want to hold their property for a long time and therefore require a good quality durable fitout which will also last for a long time. Their aims are to provide a specifications that:
- Minimises replacement and servicing costs.
- Appeals to a broad range of tenant types.
As an investor, these should also be your aim.
Unfortunately for small investors, the vast majority of new properties you will see for sale will be fitted out for owner occupiers, because:
- Owner occupiers will pay the most for any given property.
- Developers rely on owner occupiers to buy at the end of the sales and marketing campaign when they can view a finished product.
- Typically there’s a lot of competition for owner occupiers in any given area, meaning developers have to differentiate their product from the competition through the specification.
- By spending money on amenities, fittings and finishes developers attract owner occupiers who will use the property themselves for a long period.
This is not the case for investors. Expensive fitouts do not typically bring any additional rental income. However, they can add a significant cost to the purchase price of the development. Unless you are purchasing in a very expensive part of a city where there is a significant premium paid by tenants for a high end specification, we suggest you steer clear of them.
Key points to remember:
- You are not going to Live in the Property! It’s an investment. You need a good quality clean specification which can be easily and cheaply maintained.
- Tenants don’t aspire to be tenants for their whole life. They hope of owing their own property one day meaning they aren’t going to live their forever and will not be looking for the highest possible specification.
- Tenants want a good quality property to live in which is well maintained, with a landlord (or managing agent) who responds when issues arise.
- The latest wine fridge or tech gadgetry might be great or nice for them to have, however, there are limited circumstances where tenants will be willing to pay additional rental for this.
- Expensive equipment is generally more expensive to maintain. Expensive fridges and instant boiling taps need to be regularly serviced and filters replaced. It’s most likely they won’t be maintained by the tenant and they will need repairs, which you will end up paying to have done.
What’s the right specification?
This is actually one of the few questions, which only you can answer. This depends on the type of property you are purchasing and the rental market. You need to do your research by:
- Looking on real estate portals –check the quality of fittings and fixtures and the level of specification provided.
- Speak to rental agents – these guys are in the market and they are constantly speaking with tenants, ask them what they think.
- Compare a couple of developments which are a few years old, try and search some which you know were expensive and had high quality fit outs. You will most likely find that the rents being asked by landlords are not too dissimilar to the rent for other well-maintained properties.
Remember, a high specification comes at cost. As a purchaser, the cost of the specification is wrapped into the price of your property. The price you pay for your property (and the costs associated with your purchase) are critical to the performance of your investment.
Any unnecessary costs you incur are tied to your investment forever, so make sure you don’t overspend on an over-specified property.
Don’t forget, when you’re investing in overseas properties you must consider all the factors that will impact the performance of your investment. Property investment is complex and multiple factors dictate whether a property is a good is investment – it’s not simply about the price of the property and the purchase costs. Before making a commitment to purchase any property, be sure to run financial models so you have a really clear understanding of the likely performance of your property.
We hope you found this article useful, read in conjunction with our other articles and this should give you an understanding of the property investment market. We’ve produced articles for New Zealand, Australia and the UK, so make sure you take the time to consider all your options and make sure your investment is right for you.
Important notice: Proptech Pioneer and its associated companies seeks to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect. You use the information at your own risk and accept no liability if you rely on this information. Proptech Pioneer is not a tax advisor, conveyance, lawyer, financial advisor or mortgage advisor. You should seek independent advice from independent professionals before making any investment decision