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I'm thinking of buying some investment property, however I have no idea where to start with it. I understand that there are a few kinds of property investments and a bunch of laws and tax variations associated with it. The problem is, vast majority of the information online is published by the real estate agents and it seems (as they are the interested side) to be heavily biased. I have a background in science & working in financial markets, so I would want to approach it with a cool head and would not shy off from researching this rigorously.

So, the question is - what are some resources (webpages, books, journals etc) which I can use as my source of knowledge to understand how this market works and gain the necessary background?

As far as I understand, this can significantly differ from country to country, so I'd like to see things which apply in general, but also to Australia in particular.

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I personally found the "For Dummies" books, on property investment, very helpful and a great primer. I found them unbiased and very informative, laying out the basic principles. Depending on your knowledge it can provide you with enough of a foundation to have an informed conversation with banks/real estates etc.

Watch the markets for a while (at least 6 months) to know what prices vendors will be expecting and rents tenants will be expecting, most property magazines will also contain a suburb summary in the back.

When you get closer to purchase make sure to ask your bank for the RP Data reports on the properties you are looking at, the banks will typically provide these for free.

I also set out some points for myself which I made clear for myself at the beginning:

  • Financial goal - be it high yield, capital gains, tax deductions. This also includes your purchase price and expected returns etc (I was looking for high yield, something I could leave for some time)
  • Property goal - family home, unit (I focussed my research on 3 Bedroom homes)
  • Area goal - what areas could meet this criteria (My focus was on Wollongong, Campbeltown and Penrith areas)

This might provide a good starting point and really narrow down your research options as generic research on property investment can be overwhelming. I ended up with a 3 Bedder in western Sydney that has so far happily paid for itself.

Building a good relationship with real estate agents and attending lots of open homes/auctions and talking to other investors can only help.

I was once told if you attend free property investment seminars you will always learn at least one new thing (be it statistics, methodologies, finance options etc ), with that in mind always keep a level head, leave your wallet at home and don't sign up to anything.

At the end of the day keep a cool head, don't stop reading and rush nothing.

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    +1 - for keeping your wallet at home and don't sign anything, also doing plenty of research (at least 6 months), keeping a level head and not rushing anything. For every bargain of the year you think you missed there is always another one around the corner. – Victor Apr 13 '14 at 9:04
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As user14469 mentions you would have to decide what type of properties you would like to invest in.

Are you after negatively geared properties that may have higher long term growth potential (usually within 15 to 20km from major cities), or after positive cash-flow properties which may have a lower long term growth potential (usually located more than 20km from major cities).

With negative geared properties your rent from the property will not cover the mortgage and other costs, so you will have to supplement it through your income. The theory is that you can claim a tax deduction on your employment income from the negative gearing (benefits mainly those on higher tax brackets), and the potential long term growth of the property will make up for the negative gearing over the long term.

If you are after these type of properties Michael Yardney has some books on the subject.

On the other hand, positive cash-flow properties provide enough rental income to cover the mortgage and other costs. They put cash into your pockets each week. They don't have as much growth potential as more inner city properties, but if you stick to the outer regions of major cities, instead of rural towns, you will still achieve decent long term growth.

If you are after these type of properties Margaret Lomas has some books on the subject.

My preference is for cash-flow positive properties, and some of the areas user14469 has mentioned. I am personally invested in the Penrith and surrounding areas.

With negatively geared properties you generally have to supplement the property with your own income and generally have to wait for the property price to increase so you build up equity in the property. This then allows you to refinance the additional equity so you can use it as deposits to buy other properties or to supplement your income. The problem is if you go through a period of low, stagnate or negative growth, you may have to wait quite a few years for your equity to increase substantially.

With positively geared properties, you are getting a net income from the property every week so using none of your other income to supplement the property. You can thus afford to buy more properties sooner. And even if the properties go through a period of low, stagnate or negative growth you are still getting extra income each week. Over the long term these properties will also go up and you will have the benefit of both passive income and capital gains.

I also agree with user14469 regarding doing at least 6 months of research in the area/s you are looking to buy. Visit open homes, attend auctions, talk to real estate agents and get to know the area. This kind of research will beat any information you get from websites, books and magazines. You will find that when a property comes onto the market you will know what it is worth and how much you can offer below asking price.

Another thing to consider is when to buy. Most people are buying now in Australia because of the record low interest rates (below 5%). This is causing higher demand in the property markets and prices to rise steadily. Many people who buy during this period will be able to afford the property when interest rates are at 5%, but as the housing market and the economy heat up and interest rates start rising, they find it hard to afford the property when interest rate rise to 7%, 8% or higher.

I personally prefer to buy when interest rates are on the rise and when they are near their highs. During this time no one wants to touch property with a six foot pole, but all the owners who bought when interest rates where much lower are finding it hard to keep making repayments so they put their properties on the market. There ends up being low demand and increased supply, causing prices to fall. It is very easy to find bargains and negotiate lower prices during this period. Because interest rates will be near or at their highs, the economy will be starting to slow down, so it will not be long before interest rates start dropping again. If you can afford to buy a property at 8% you will definitely be able to afford it at 6% or lower. Plus you would have bought at or near the lows of the price cycle, just before prices once again start increasing as interest rates drop.

Read and learn as much as possible from others, but in the end make up your own mind on the type of properties and areas you prefer.

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