Australians love property and the recent boom in residential property has reinforced many people's view that property is a "safe" investment, yet far too often the purchase of an investment property is a hit-and-miss affair.
Unlike shares, property investors can't look at the value of a particular property on the equivalent of a stock exchange, or tap into a wide range of freely available research on the value of the town house down the road.
Property investor, adviser and author Margaret Lomas* says there is almost nowhere to go for property investment advice because financial advisers won't advise on property.
Lomas, who runs her own independent property advisory firm, says people should use the same commercial approach when buying property as they would with shares.
"Most people try to second-guess where the next growth area will be (for capital gains), but I look for positive cash flow today," she says. To achieve that, she tells people they can do a lot of research themselves.
Lomas says some questions that investors should ask relate to council plans for the
area, local demographics and proximity to a capital city.
The local council will be able to tell you if there are major developments planned that could indicate future oversupply of rental properties, or if there are plans for major infrastructure developments that could improve the value of your property and attract potential tenants to the area.
Satellite areas within a two-hour drive of a capital city such as Sydney are also a safe
bet because they attract tenants priced out of the city.
The make-up of the local population is also important. For example, if most people in town are employed by BHP and it decides to close the plant, you're in trouble.
Once you've got your eye on that three-bedroom bungalow, Lomas suggests you ring property managers in the area not connected to your real estate agent and ask about rent returns and vacancy rates.
"If he's got lots of three-bedroom bungalows on his books, you know there is an oversupply," she says. "If not, and the council's not planning to build more like it, you may have found a good investment."
Even though rental return is the key factor for investors, paying the right price is an essential component for investors and owner-occupiers alike, but valuing a property is easier said than done.
For a ballpark figure, Australian Property Monitors offers house price guides by postcode for $49.95, with discounts for multiple searches. They also provide price guides to particular properties based on comparable sales in the area, historical sales on that property, and growth rates in surrounding areas. You can also get the latest auction results via your mobile phone.
However, if you want an independent valuation of a property it is probably worth paying for the service.
The Australian Property Institute recommends that owner-occupiers and investors get an independent valuation at an average cost of about $300 to $500, which is tax-deductible for investors. The institute can provide listings of certified practising valuers in most areas.
If you are buying a unit, town house or villa you will also need to do a strata title inspection to check that the owners' corporation is keeping proper records, adequately providing for maintenance and repairs and that there is no history of disputes.
The chief executive of Purchaser Strata Inspections (PSI), Ken Greenaway, says people should be aware that buying a strata title unit is like buying into a limited liability company.
As an example of what can go wrong, Greenaway mentions a block of Gold Coast holiday units left uninsured by the HIH collapse. Three visitors slipped on wet tiles in one week and each claimed about $250,000, which will have to be funded by the unit owners. If any owners were unable or unwilling to pay and tried to make a quick sale, buyers who failed to check strata title records could end up with the liability.
Anyone buying a unit should use a solicitor experienced in strata title, or pay for an independent strata title search. As a price guide, PSI charges about $250, although Greenaway says multi-storey units with a poor history can cost thousands of dollars.
Property investors often say they like to buy local property so they can keep an eye on it, but Lomas says the stress of driving past property and worrying about how it is being treated is something she can do without. "I prefer to put the effort into getting the right property manager - it's worth the money," she says.
Most importantly, Lomas urges investors not to compromise on their investment parameters. "Remember, there are always 50 other suitable investment properties around," she says.
*How to Maximise Your Property Portfolio, by Margaret Lomas, Wrightbooks, rrp $24.95.
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