Where & What to Buy?

What you'll learn in this step is to learn how to maximise capital growth and negative gearing. Read on for additional handy tips.

Where to Buy?

Because investment properties are bought as investments and not as owner-occupied residences, purchasers are able to take the emotion out of the decision of where and what to buy.

As you want to benefit from as much capital growth as possible, the first rule is to buy in a growth area. Experts define suburbs located upto 10 kilometres from a city's central business district as likely to bein a growth area. The best strategy is to visit a number of areas to get a feel for what they offer. As you will be renting out the property be aware of what tenants look for when they rent such as access to transport,shops and leisure facilities. An attractive property in a sought-after area will also ensure strong rental returns and ongoing tenancy.

What to Buy?

While owning a house may be nice, units are far easier to rent out.They are also easier to maintain there's no lawn to mow, and when things go wrong in the building such as flooded pipes, any expense is shared among the other owners.

Properties with a view are always more desirable than those without, but the bottom line should be what you can afford to buy and what rent you expect to be able to charge. Over-committing in order to get a waterfront property is not a sensible move if there aren't any tenants around that can afford to rent it from you.

Zoning is another factor that can affect what you pay and what you getwhen you sell. Homes on land zoned for single-family dwellings are popular as this protects your investment from developments that might undercut its value. Look for a property that can be sold quickly if you find you have to sell in a hurry. Again look for additional features that are attractive to buyers such as an apartment with a balcony, internal laundry and garage.

If the property you are interested in is currently being rented, ask about its history of tenancy. Have there been periods where it hasn't been occupied? If so, find out why as past problems of getting tenants may mean you could also inherit them.

Home Loans for Investment Properties

There are few differences between what you need to do to borrow for a property you'll live in and borrowing for one you'll rent out. Some lenders charge a higher interest rate for investment properties because they say their risk is higher, but if you shop around you can generally get a rate that is the same as for owner-occupied properties.

When buying an investment property ensure you do everything you would do if you were purchasing a home you would be living in. This includes all the normal inspections and familiarising yourself with property prices in the area. The last thing you want to do is overpay on a property andnot see any capital gain.

Investment properties have many benefits when it comes to building long-term wealth, but this wealth is not always guaranteed. As a means of diversifying your exposure to different asset classes, property can be less volatile than shares (although not always) and tends to be the haven investors rush to when other assets suffer. While it has lost its gloss since the boom times of the late 1980s, sensible investments in property have many attractions.

All investments need a benchmark to measure performance against. Residential property isn't any different, yet few investors monitor their returns, reports Susan Hely. Your first investment in property doesn't always have to be something you live in.