Starting out as a property investor: The nine things to keep in mind

There are many reasons to own investment property: you might want an asset for retirement, you might wish to rent where you live and own a property elsewhere, or property might be your choice of wealth-creation. Regardless of why you invest in property, there are a few things to keep in mind:

• Goal: be clear about what you want to achieve, and in what time-frames. Before you buy a property you should decide on your earning goals: will this be a negatively or positively geared investment? Will you invest in renovations to increase your rental return?

• Budget: write detailed plans about what you have to spend, how much you will have to borrow, and what the borrowings will cost. Include the cost of renovating, repairs and maintenance as well as the predicted costs of management, insurance and rates. And then calculate rental income.

• Research: Do your research before you buy a property. Go to real estate agencies in the area and pick up their ‘for rent’ sheets. See what rents are being asked for what kind of properties. Ask agents what properties they would like to manage. Go to some open days. Get a sense of which agents are on their game.

• Inspections: if you’re buying a place to rent to others, basic things must be in working order that you might let slide if you lived there yourself. Always have an inspection done by a qualified expert.

• Tax advice: don’t rely on barbecue chatter for your tax advice. If you intend to negatively gear your rental property, and claim the loss you make against your taxable income, then you should be advised by a solicitor or accountant, at least before the purchase and for the first tax return you lodge.

• Fixed or variable: budget a scenario for a fixed rate and a variable rate. Fixed rates are currently very low, and give you interest rate certainty for two, three or five years. But variable rates provide you with flexibility. Many lenders allow you to split your mortgage between fixed and variable.

• Renovation: do your best to assess the renovation requirements before buying the property, and put these in your budget. Don’t get carried away with renovations – stay within your budget.

• Insurance: landlord insurance is imperative and you should contact a broker if the inclusions and exclusions confuse you. Renting property is a business and some of the features of landlord insurance might not be familiar. Get this right.

• Management: there’s a clear choice. You either decide to manage the property yourself, doing basic maintenance and repairs. Or you use a managing agent who will charge a percentage of the rent. DIY managers of property can usually do the handiwork, but inexperienced owners usually stumble on tenant law and collecting rent.

Investing in property is an excellent way to build wealth, but it should be approached like a business. Have a goal, have a plan and work within your budget.

Good luck.

You can contact Mark on Twitter.