When it comes to building a retirement nest egg for the future, property is still regarded as one of the safest long-term investments. Some investors choose to buy a property and rent it out straight away. Others decide to live in the home, perhaps while they upgrade and modernise or renovate it. Although investing in bricks and mortar can be a great way to create wealth, there are some golden rules to consider before taking the plunge.

1. Know your budget

It’s important to have a thorough understanding of your cash flow situation before you purchase your investment property. Also, ask your lender or mortgage broker for pre-approval of your investment loan so you know how much you’re able to borrow and therefore how much you can spend before you start your search. Then stick to your budget.

2. Don’t underestimate ongoing costs

Ensure you allow sufficient room in your budget for ongoing costs. These include rates, insurance, property management fees and general maintenance and repairs. It’s wise to be proactive when it comes to maintaining the property rather than leaving things to deteriorate through wear and tear. If you are on top of regular maintenance, you are more likely to keep good tenants, reduce costly repairs and improve the property’s capital value over time.

3. Buy in a growth area

Try to choose an investment property in an area where there is strong demand for rental accommodation. Buying a property close to transport, shops, schools, universities, childcare and recreational facilities will make it more attractive to renters and therefore reduce vacancy periods.

4. Be realistic about why you are investing

It is important to be clear and realistic about your investment goals. Ask yourself, ‘Am I after fast capital growth or do I want to hold onto the property for the long term?’ Generally speaking, property investment is a long game. However, during boom periods, savvy flippers can have success in renovating and turning over a property for a relatively quick profit. But when the economy is slower, it may take many years to achieve the same growth. Be patient. The market always goes in cycles.

5. DIY if you can

If you are planning to do some simple upgrades to the property, such as working on the gardens, painting and replacing handles and tapware, prepare to get your hands dirty and do as much as you can yourself to save money. Doing it yourself where you can will increase your profit margin. Just don’t attempt to do any major reno work that should be left to the professionals – and don’t even think about touching the electricals, unless you’re a licensed electrician!

6. Buy with your head, not your heart

When looking for the right investment property it’s important to think strategically and not get sucked in by emotional attachment to a property. Remember, this is an investment, not your home. Look for practicality and potential, not luxurious decor etc.

7. Think carefully before negative gearing

If your repayments on the investment loan won’t be fully covered by the rent, your property will be negatively geared. While this can have tax advantages, it can also lead to financial stress if you don’t have enough cash flow to cover the loan repayments, rates or body corporate fees. 

8. Having a mortgage on your home doesn’t rule out property investment, but ensure you don’t put yourself in too deep

It isn’t necessary to have your own home  paid off before buying an investment property. However, it is important to be comfortable with your current debt levels. Ideally, you’d want to have a large portion of your home paid off and other debts, such as credit cards, under control. The last thing you want is to be in over your head. This is especially important to consider now as interest rates are on the verge of rising.

9. Get a building inspection

Take the time to understand the building report to avoid expensive repairs down the track. This does not mean the property has to be perfect. But if there is work to be done, it’s better that you know what you’re in for and get an idea of cost from a builder BEFORE you sign the contract.