If you’ve ever made a significant personal purchase you’ll know all of the feelings that come with buying a home, but buying an investment is very different; or at least it should be.

When you buy something for yourself, it’s all about how it makes you feel. Do you like that colour? Do you like the size? Can you see yourself in it? How does it feel when you think about owning it? All of these considerations are in play when you buy a home, a car, a new TV, or any other significant purchase. None of them should come into play when you buy an investment property.

An investment property is a tool. It is a means to an end. You can love owning an investment property, but there’s no need to love the property itself.

A couple of years ago, we purchased an investment property off the plan from a developer in northern Melbourne. At the time, there were still multiple properties available in the complex. We narrowed our choice down to 2 apartments. Apartment A was worth about $390,000. Apartment B was worth about $430,000.

There’s no doubt that Apartment B was significantly better. If we were living in it, we would have chosen Apartment B in a heartbeat; but was it a better investment?

Apartment B had a better aspect – it was higher in the block and looked out over the street and gardens. Apartment A looked out at a fence around its back courtyard. Apartment B was also boasted a large balcony and better living area than the alternative.

It may seem surprising then that we chose Apartment A. It was smaller, its aspect wasn’t as good and it had no view to speak of. What were we thinking? Here’s an insight into the investor mindset...

Overall, there are 2 factors to take into account when buying an investment property: yield and growth. How much rent will the property generate and how will it grow in value? In many cases you’ll be looking for just one of these factors. Sometimes you’ll be looking to balance both.

If growth is your aim, you would choose the larger, higher value property because both properties may grow by 10% each year, but Property A is making $39,000 equity each year while Property B makes $43,000. $4,000 per year extra may not seem a lot, but it will add up in no time and help you buy your next investment sooner. That’s great if you want to leverage your equity to buy more properties sooner, but your loan repayments will be higher in the meantime.

Clearly, we weren’t looking for growth. We were looking for an easily-maintained, “set and forget” investment so Property A was a better choice. A balance between growth and yield is a good, low risk way to build your portfolio and that was our aim. Property B’s rental income wasn’t 10% higher than Property A so its yield was actually less. That means we would have been spending more from our own pockets each month because the higher loan repayments weren’t covered by higher rental income. Although a more rewarding property in terms of growth, Property B was a harder property to own because of higher out-of-pocket costs.

The quality of an investment is a reflection of how it suits your needs and strategy, not how much you like it. That’s why it’s important to research rental yield and capital growth predictions before making your decisions. Your investment decisions should be based solely on facts and figures because buying your favourite property doesn’t mean you’ll get the best rental yield or growth.