When you’re looking at finance for an investment property, lenders will carefully assess several risk factors with the help of professional valuations. Lenders want to know that their money is safe, and that the property is a good investment.
Understanding these factors is important for property investors as they directly impact your borrowing capacity. However, this knowledge can also help investors consider if they’re making a wise investment decision.
Location quality
Location remains critical in a property valuation. Real estate in highly desired locations close to key amenities such as employment hubs, public transportation and quality education receive better valuations, in the same way buyers are attracted to these locations. Strategic location choices can significantly boost your chances of loan approval and at the same time will go a long way to a success investment.
Environmental considerations
Properties in areas prone to natural disasters like flooding or bushfires are considered higher risk investments. These locations often face challenges with comprehensive insurance coverage, which can impact lending decisions. Always research the environmental risks associated with your target area before committing.
Property improvements
The age and condition of a property significantly influences its risk rating. While newer properties typically receive better ratings, well-maintained older properties with quality improvements can also achieve favourable valuations. Regular maintenance and professional-grade renovations can help maintain a property’s value.
Land characteristics
Lenders scrutinise land-ownership aspects including zoning regulations, title status and property access. Clear title and appropriate zoning are essential for good risk ratings. Ensure all land-related documentation is in order before applying for finance.
Market volatility
Properties in markets with high supply levels or significant fluctuations in prices may be seen as higher risk. For example, inner-city apartments in oversaturated regions often receive higher risk ratings. Research market conditions and supply levels in your target area.
Future value projections
Valuers assess potential value changes over the next two to three years. Properties in areas with strong growth indicators and stable market conditions typically receive better ratings. Consider the future development plans and market trends in your investment decision.
Local economic stability
Areas with diverse employment opportunities across multiple industries receive better ratings than single-industry economies. Mining towns or tourism-dependent regions often face higher risk ratings due to economic volatility. Look for locations with stable, diverse economic bases.
Market position
The property's saleability and its position within the market sector influence risk assessment. Lenders want assurance they can recover their investment if necessary. Be sure to choose properties with broad market appeal and strong resale potential.