Buying your first investment property?

When you’re taking your first steps into the property market, it can be daunting to know what to look for. But if you do your research before diving in headfirst, choose wisely, and make savvy decisions, your very first investment property can serve you well for years to come.

An investment property is about increasing your wealth and securing your financial future. So, to help you on your journey to building wealth, here are five considerations to make before committing to the big ticket buy.

Set a strict budget

With 1 in 5 Australian families taking on three times their annual income in debt to finance a new home, buying a typical 'capital city' investment property may be out of reach for many first-time investors.

This isn’t to say that there aren’t alternative options. Many of the best investment opportunities are found in newly emerging suburbs or country and regional towns, where house prices are often a fraction of the price of their inner-city counterparts. At the end of the day, it makes complete financial sense to start small and stick to a property within your budget.

Locate an area tipped for growth

It would seem self-explanatory that for an investment property to be successful it would have to increase in value and give a good rental return but picking an area that will outperform others can be daunting task with so many criteria and attributes to choose from.

Look for suburbs or towns that provide resources close by such as health services, public transport, schools, low-vacancy rates and low crime levels.

Do the research and find out how property in the area has been performing and what development or growth in infrastructure may be planned.

Keep in mind that a suburb that’s been performing well in the past isn’t guaranteed to continue that way.

[Invest wisely, not emotionally

As the old saying for property investment goes, “if you would live in it yourself, don’t buy it". It can be hard for first time investors not to become too emotionally invested in their first purchase. But often, the best investment is the simplest.

Remember the purpose of the investment is to maximise your return, so don't pass a good one up because you don't like the bathroom tiles. Having said that, a property also has to appear attractive to renters, so don't choose something that needs a major makeover unless you can afford it.

Create a plan B

Owning an investment property is a journey that will continue to deliver new twists and turns. It’s not uncommon for the unexpected to transpire and to happen frequently.

Tenants may need to vacate suddenly, damage may occur to the property, tenants may default on rental payments – there’s an abundance of issues that can result in the loss of rental income. That’s why it’s important to be prepared and have a buffer of several weeks’ worth of rent to avoid suffering financial stress.

Compare agents and their fees

Once you've found the perfect place, you'll need to rent it out. In most cases that will mean having a real estate agent go round to give you a rental appraisal, which is an estimate of the expected rental return that your property will achieve.

There are hundreds of agents and agencies to choose from, all providing different fees and levels of service, but the most important factor should be your faith in their ability to look after your investment – after all, it’s likely the most valuable asset you own.

Above all, make sure you secure appropriate Buildings and Contents Insurance, so that if anything does happen to your investment you’re completely covered and get the peace of mind you deserve. NRMA offers building and contents insurance for investment properties in NSW, QLD, WA, NT, SA, ACT and TAS.

This content is intended to be general in nature and is not financial or professional advice. We recommend you obtain independent professional advice relevant to your circumstances, before making any financial or commercial decisions.