5 solid steps to buying rental property

1. Know why you are doing this, and what you can afford

What do you want to achieve by buying real estate as an investment? What are your short-term, medium-term and long-term goals? How much will you spend?

Make sure you are crystal-clear about why you are pursuing investment in this asset type, including your specific requirements (i.e. rental return/financial goals) and, critically, your purchasing and ongoing budgets.

This is where you need to speak to lenders about pre-approval for any borrowings you need to complete your investment transaction.

2. What do you want?

Once you know why, and how much, you can work out what you want to buy. Will it be a metro or regional property, a house or an apartment? Do you need a specific level of ongoing rental income to cover its ongoing costs? Do you plan to buy a property you can improve with cosmetic and/or structural works?

Are you seeking capital growth or rental income – or both? Is there specific a state or territory, a city or township, in your sights?

3. Research, research, research

If you haven’t already been keeping an eye firmly on the market, this is the time to get cracking. Study recent comparable sales and prices in areas of interest. Speak to local agents. Let them know what you are looking for so that they can keep you in mind if suitable listings hit their radar.

If you can, visit the suburb/s at different times of day and night to build knowledge of the geography and demographic and consult the local council about planned developments that may impact your market.

4. Scrutinise supply/demand, and watch for properties with a twist

Making wealth from real estate stems from the economic fundamental prices (i.e. capital value) rise more strongly over time in areas with less supply than demand. With this in mind, keep a keen eye on how long listings are on the market before selling, and whether an influx of housing projects that will boost stock is coming. If you are planning to hold your rental property long-term, this may not be a deal-breaker. But it is important to get a feel for your chosen location’s housing stock levels and buyer/rental demand to ensure this supports your goals.

Also keep your eyes peeled for properties in your price range with an appealing quirk, as this increases overall appeal and, therefore, investment value.

Features including water views, generous floor plans, proximity to parks, shops, transport or schools and parking appeal to tenants, and will appeal to buyers when it is time to sell your investment.

5. Get your team in place

Finally, before you buy any property, it is wise to have a trusted legal expert, building inspector, accountant and – if necessary – lender, property manager and/or buyer’s agent lined up.

This way, your A-team can swing into action as soon as you bring them the purchasing deal.