Living the dream as a landlord

[jenny_pt]

BECOMING a landlord is the aim of many, but you need to know what you're doing.

Property investing is the subject of countless books and seminars in which so-called experts talk about the easy millions to be made.

It sounds easy but becoming a landlord is not an instant one-way street to riches.

It's to be approached with your eyes open and your wallet shut until you are sure about what you are doing. Here are some key questions to ask.

Have I got a big enough deposit?

Requirements for deposits have increased.

While landlords could get 100 per cent deposits this time last year, the maximum loan-to-value ratios (LVRs) have been cut gradually from 100 per cent to 95 per cent and now to 90 per cent.

In other words, you will need a deposit of at least 10 per cent.

How much rent do I need to earn?

There is no set level of rental income that is relative to the mortgage interest but banks will look at your income and outgoings, including repayments on other mortgages, and assess whether you can afford to cover the interest in the event there is no rent income.

"Most banks will assume four weeks a year when the property is empty," says Mortgage Choice broker John Manciameli.

How long should I invest for?

Investing in property is a long-term game. You can't rely on prices holding up or rising in the very short term and the longer you can afford to commit for the better.

What if I have tenant problems?

Many issues can arise with tenants, from late payment of rent to treating the property badly or malicious damage.
Residential tenancies authorities in each state offer plenty of information.

You should take out landlord insurance. It is available from most of the major insurers and covers risks such as arrears and damage.

What if I am self-employed?

If you will have problems verifying your income and need to do a low-doc loan, you will need to stump up a 20 per cent deposit.

But if you can come up with two years' worth of business statements, bank statements and trading history, you will qualify for a normal LVR of 90-95 per cent.

Where are the best areas to buy?

Location, as any landlord will tell you, is key. But in a country with such a shortage of properties on the market, vacancy rates are historically low.

The old tips about buying within half-an-hour or so of the city centre, near shops, public transport and other local amenities hold true.

"Many banks do not like lending in certain areas, particularly regional locations, so they may insist on a higher LVR or won't lend at all,'' Mr Manciameli says.

"Others don't like high-rise blocks.''

How shall I decorate the place?

Try not to impose your own taste on the property. Make it as neutral as possible, with white tiles and neutral colours rather than wacky reds. Avoid swirly patterns on curtains simple blinds are popular.

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Jenny