1. Choosing an investment property should be based purely on numbers – and most importantly what the yield is.
2. Don't over capitalise on your rental property. Before undertaking any work you must consider if the improvements you are planning on will be returned to you in rental income.
3. Generally yields tend to be better in less expensive suburbs. Where you aspire to live may not be the best choice for your investment. However, you also need to consider how much the property will appreciate in value.
4. As with all property transactions, try to buy below market value. Select a number of suburbs you think are likely to increase in value over time and look for opportunities such as distressed sales, deceased estates and mortgagee sales.
5. Think about resale. Will the property be attractive to other buyers when the time comes to sell? Is there something special about the property that will attract interest such as its aspect, local schools or privacy.
6. Make sure you have thought about the “what ifs”. What if you have periods of vacancy? What if interest rates increase? What if you need to sell quickly?
7. When you have made the decision to buy, consult the professionals. Use a mortgage broker to find the best lending rate and get legal advice.
8. Find a good property manager and let them do their job. They will find the right tenant and make sure the rent is paid on time.
9. Insurance is important. Your property manager can advise you on what you need.
10. Finally be a good landlord. Be proud of your investment and look after your tenants.
What is yield?
Yield is the income return on an investment. Your ultimate goal as an investor should be to secure a high yield property in an area that delivers capital gains, a strong rental return and low management and maintenance costs.
Gross rental yield = annual rental income (weekly rental income x 52) / property value x 100
Property purchase price = $500,000
Weekly rent = $400
(400 x 52) / 500,000 x 100 = 4.16%
For a more accurate picture of the true yield of a property to include expenses, use the following equation:
Net rental yield = (annual rental income – annual expenses) / (total property costs) x 100
You will find experienced investors are less concerned about a property’s price and more about yield figures.