- Know your budget
If you are thinking of investing in property, it is important to first set out a clear budget. Make sure you take into account the purchase price, stamp duty, legal costs, mortgage insurance (if needed) plus any extra cash you may need for renovations. Once you've done your numbers, ask your bank for a pre-approval on your loan so that you know exactly how much money you can borrow before you start hunting for properties.
- Seek advice
There are many different options for financing your investment property. Whether you choose interest only or a variable loan will depend on your circumstances – consider your options carefully before you decide. Structuring your loan correctly is vital for your long term financial health, so seek advice from a reputable financial advisor, accountant and conveyancer.
- Research locations
It's important to buy in an area where there is strong demand for rental accommodation – so research the local demographic. Apart from rental return, you are also looking for capital gain. Each individual property market has its own growth cycle – this can be due to local supply and demand, economic climate and consumer confidence. The idea, if possible, is to invest in a suburb that has just been through its cyclic downturn and is poised for its price growth phase. Choosing an 'upcoming' area can pay dividends. Look for suburbs undergoing gentrification – signs include; the arrival of young people with good incomes, new homes and renovations springing up, plus new infrastructure like schools and business centres.
- Know the market
Once you decide on a location, do your research. Talk to locals, real estate agents and council to get a feel for the area then check out recent sales to get a good idea for what property in the area is worth.
- Be objective
When purchasing a property for investment purposes, it's important to buy with your head and not with your heart. As an investor, you are making a business decision and should be looking for property that is well presented and functional with potential for good rental return and capital growth in the future.
- Get an inspection
If you are purchasing an older property, making major repairs in the first few months of ownership could make a significant dent in your cash flow. It is therefore worth hiring a professional building inspector before you purchase. Prior to signing the purchase contract, take time to understand the building report to avoid expensive repairs down the track.
- Freshen it up
You'll attract better tenants if you have a well presented property, so it pays to spend a bit of time and money polishing it up. Paying tradesmen to renovate your investment property is costly. If you're prepared to get your hands dirty you can save money and increase your profit margin by doing some of the work yourself. Keep colours neutral to appeal to a wide market and make sure your kitchen and bathrooms are in good condition. A lick of paint and some new carpet can do wonders for freshening up a property.
- Beware of costs
Once you have bought a property you need to be aware of the ongoing costs involved in main¬taining it. Apart from the interest charged on your mortgage, you will also have to pay council rates, land tax, property management fees, strata fees (if applicable) and insurance. As a landlord, you will also be up for any maintenance repairs needed on the property. You will of course receive rent and tax deductions to offset these costs but it's a good idea to have all your incomings and outgoings set out in a budget so you know exactly where you stand.
- Employ a Property Manager (PM)
A Property Manager (PM) is usually a licenced real estate agent who will keep things in order for you and your tenant.A PM can help you place a tenant, undertaking reference checks to ensure you find the right person. They will advise you on market rent for your property and can negotiate this with a prospective tenant to get you the best possible return on your investment. A good Property Manager can give you advice on the rights and responsibilities of landlords and tenants. They will also take care of any maintenance issues, manage rent collection, run regular property inspections and act as the point of contact between you and your tenant. The fee you pay your PM is usually a percentage of the rent and is tax deductible.
- Think long-term
Remember that property is a long-term investment and you should not rely on property prices rising in the short term. The longer you can afford to commit, the better – and as you build up equity, you can consider purchasing further property.