Step by step: how to buy your first rental property
Dream of enjoying long-term financial stability? Investing in a rental property is the perfect place to start. It provides you with monthly cash flow and future income whilst making steady capital gains. It also gives you options – and lots of them. You may decide to live in the property down the track, sell it if you need funds, or use it to supplement your retirement - the world is your oyster!
“I’m often asked what to look for when purchasing an investment property, and I always say timing and location,” says Andrew Graham, CEO of Rental Management Australia. “Don’t wait until everybody is buying an investment property, and always put yourself in a tenant’s shoes. Think about what they will look for in a rental and what makes it more appealing to them.”
Choosing the right property takes time, research and patience. Not sure where to start? Here are some essential steps to follow when buying your first rental property.
Consult a property manager
The right property manager is not only essential for finding, vetting and moving the perfect tenant into your investment property; they can also guide you through the buying process.
“Our Business Development Managers at Rental Management Australia can tell you where the highest demand is and what rent you can expect from various properties,” says Andrew. “Many of our clients use this service before purchasing a property for independent and on the ground advice about what current tenants are looking for. They also get advice on and how to enhance the investment property to maximise yields.”
Luckily there are property investment opportunities to suit all budgets. Ensure you have sufficient funding before considering buying. Be aware that the home's purchase price is not the total amount of money you will spend; it's important to factor in additional fees, charges and associated costs. Consider insurance costs too. Along with building insurance, you'll need to protect against unexpected costs like damage, rent loss, tenants' injuries, maintenance costs and appliance and yard upkeep.
Get loan pre-approval
Completing your paperwork early puts you in a strong position, especially if you're buying at auction. Loan pre-approval is especially advantageous when properties move quickly and if the contract is unconditional.
Just as important as knowing your budget is forecasting the rental yield you will receive from your investment property. The larger the yield, the more attractive your investment is.
When calculating rental yield consider:
o Property purchase price
o Annual maintenance expenditure
o Annual rental income
Consider the type of tenant you hope to rent to and what they might be looking for in a property. For example, a city apartment attracts young professionals, whilst a three-bedroom home in the suburbs will suit families with young children. Check the area has good transport links and schools, as this can also help attract the right tenants and increase your property's price.
It's important not to focus solely on property hot spots. Real estate can be unpredictable, so consider up-and-coming areas gradually increasing in value. Look into the growth-trend indicators - what’s the median sale price for the suburb.
For many, an important aspect of investing in property is finding one close to home. If you intend to be a hands-on landlord, investing in property you can visit at short notice makes life simpler.
Look at the property layout: features like garages, additional bathrooms or a home office space will go a long way in increasing the properties rental value.
Avoid high maintenance properties
At inspections, keep an eye out for potential significant repairs or renovations. Cracks in walls, mould, damp basements and signs of pests could indicate the home will need maintenance and may require more money than you hope to spend.
Do your due diligence
Think carefully before making an offer, even if you have fallen in love with the property or given yourself a strict deadline to buy. Before signing on the dotted line, get a building inspection to assess the property's condition. Check if there are any upcoming developments planned for the area and check current and potential zoning. Your sunset view might be under threat from a huge new office building, or planned infrastructure may affect the value of your investment. Finally, whip out the paintbrush yourself if there's work to be done. The less you spend on the house, the more significant profit in your pocket.