Tips for first time property investors

With so much choice and so many decisions to make along the way, purchasing your first investment property can be a daunting task. However, with a clear set of guidelines and an agreed plan you can relax and enjoy the process.

It is important to remember that choosing an investment property is a commercial decision and careful consideration should be given to the many factors that will affect the suitability of your property for rent and resale and the subsequent profitability of your property.

Here are some tips for first time investors - from researching and buying your investment property through to becoming a landlord.

Set a budget

Before you begin looking for a property it is important to set a realistic budget for your purchase.

• Talk to your bank or broker about how much you can borrow;
• Work out the repayments on the investment mortgage;
• Estimate your rental return and any shortfall between the mortgage and rent returned;
• Consider this shortfall within your household budget to ensure you can meet this commitment;
• Take into consideration changes in interest rates to ensure your budget will allow for a rise in rates;
• Talk to your accountant or financial advisor about the tax benefits associated with your investment;
• Set your budget, and stick to it.

Set your search parameters

Once you have settled on the financial parameters of your purchase you should narrow down your search based on criteria that you are comfortable with, such as:

• The type of property you are interested in: unit, apartment, house, land or off-the-plan sale;
• Target areas for investment: local area, regional area or interstate and then CBD or suburban areas;
• Demographic criteria: student, retiree or family style accommodation

Research the market

Generally when looking for an investment property its best to follow these tried and tested guidelines:

• Look for areas close to schools, public transport, major freeways and shops;
• Areas close to the CBD and major business districts will tend to perform well;
• Seek out areas with council or private development plans for growth and new infrastructure;
• If you find a suburb that is performing particularly well but it is priced out of your budget, look at the immediately neighbouring suburbs;
• Look into the demographics of the area using a site such as that of the Real Estate Institute in your state which will provide statistics on population growth, age of population, average income of the population and rates of rented vs owner occupied dwellings.

It is also a good idea to research the rental market in the areas you have identified as suitable so you can ascertain the estimated rental return for a property within your budget.

Choose a property for purchase

With a set budget in mind and an idea of the areas you would like to target, its time to get out and start looking.

Use online resources such as www.realestate.com.au and www.domain.com.au as both of these sites will provide you with a tool to refine your search by criteria such as suburb, price, size and type of dwelling.

Check your state newspaper for weekly advertisement of properties for sale but also look in the local paper of your targeted area. Lastly, register with local real estate agents as you will sometimes have an opportunity to view a property before it is advertised.

Once you have narrowed down your search to a few properties you like, consider the suitability of the property for rent. Remember that a rental property must present well in order to attract a quality tenant. Ask yourself the question; would you live in this house?

The following should also be considered when selecting an investment property:

• Does the property require any improvements? If so, factor these into your budget as you will need to carry out works before you can rent the property;
• If the home is part of a strata group, check the strata minutes for any upcoming improvements to the common areas which you may be required to contribute to;
• Is there adequate parking and facilities for the tenant?

If you are comfortable that the property suits all your requirements, make an offer within your budget.

Choose a property manager

While some investors will choose to manage their own properties, many will enlist the services of a property manager. When choosing a property manager you need to select a professional firm with a reputation of experience and credibility. Some questions to ask when choosing a property manager include:

• How long have they been a property manager and how long has the firm operated?;
• How many properties do they manage?
• Do they attend regular training to keep abreast of legislation and industry changes?
• What is their policy on managing arrears?
• When will you receive your rent returns?
• What is their strategy for marketing your property and securing a tenant?

Minimise your risk as a landlord

Once you become a landlord you will have responsibilities to your tenants and you will be exposed to certain risks. However, your awareness of these factors and the regular upkeep of your property will reduce your exposure to risks. Items to consider include:

• Landlord protection insurance: this insurance will provide you with peace of mind and ensure that you are protected in an unexpected situation of loss of rental income or property damage. Landlord insurance is also a tax deduction.
• Smoke detectors and safety switches: smoke detectors are mandatory to be installed in all rental properties and electrical safety switches are also a good idea to ensure a safe environment for your tenant;
• Regular inspections of your property by qualified professionals will ensure your property remains safe for your tenants. It is a good idea to have your property regularly inspected for white ants and for structural defects. 

Don't forget, over a period of time your rental property will also need to be upgraded. Ask you property manager to keep you up to date on the property or conduct annual inspections yourself to keep an eye out for any areas of improvement. Set aside some money for these improvements to ensure there are no surprises.