Things to consider
Do your research
Conduct research on existing rental properties in the area you’re interested in. By looking at similar properties currently being advertised for lease you’ll get an idea of what you can expect to receive in rental income. Also look into property sales over the past 12 – 18 months to determine the value growth of the area. Then talk to your mortgage broker or credit professional about whether they think current growth levels are likely to continue.
An investment property will require regular maintenance and upkeep to ensure it’s in the best possible condition to maximise the rent you can charge. When thinking about potential renovations to the property consider what effect they will have on the overall value of the property, compared to the cost of improvements. It’s best not to spend your money on renovations that don’t increase the value of your property.
Plan long term
Investing in property is rarely a short term investment. The instances where property values provide large returns in short time frames are few and far between. It may be best to plan to own your property for a number of years before you seek to sell. Also keep in mind that turning the asset back into cash via a sale is a process that can take some time, and if rushed can result in a lower sale price.
In a perfect world your investment property would be leased by low maintenance tenants who always pay on time, rarely contact you with requests and continuously renew their lease.
Unfortunately getting all three traits in one tenant is unlikely. So it’s best to be in a position where you are protected in less than ideal circumstances, such as costly emergency repairs to your property or a tenant breaking their lease early, resulting in your property being untenanted. Two popular ways to protect yourself are to keep a buffer of funds on hand for use when necessary (these could sit in an offset account to save you interest) and landlords insurance.
Note: This does not constitute taxation advice and may not be relevant to everyone. You should obtain independent expert advice on your individual circumstances.