Here are some of the big ticket "due diligence" items to look into:

– What has the average annual capital growth of similar properties (in the same suburb) been over the past 10 years?  (You can find the answer in the statistics pages at the rear of the "Australian Property Investor" magazine, which your local newsagent should stock.  You want a minimum of 7%.  Capital growth is the increase in price of a property.

– What is the vacancy rate of the area?  (also refer to rear pages of API magazine).  You want it to be no higher than 3%.  If it is higher, it means there are many more rental properties available than there are willing tenants.  So you could be left with an empty property and a lot of competition.

– What is the rental yield?  Generally we aim for 5% but some investors are happy to accept a lower yield for a property that has a high annual capital growth rate.  You calculate the rental yield by getting the weekly rent, multiplying by 52, then dividing by the price of the property.  You can determine the likely rental yield by looking at guide figures in API magazine, but also by looking to see what similar properties are being advertised for (for rent) on http://www.realestate.com.au

– Is there are infrastructure coming?  (ie new roads, rail lines, rail stations, airports, shopping centres…).  If you call the local council and speak to the planning department nicely, they will sing like canaries.  Generally new infrastructure means it becomes more convenient to live in a suburb, and potentially makes it faster to commute to the CBD where the work is.  So in theory, the suburb would become more attractive to live in as a result.  Be careful of course if there is undesirable infrastructure going in.  For instance, is there a new waste disposal facility going in next door?

– Drive around your target area at several different times of day, and on different days.  Does the area become seedy and scary at night?  Is it generally a family area?  Do the roads choke with school traffic at certain times?  Is there sporting traffic to content with?  (eg as there would be around the MCG on a Saturday).

– How do the existing residents keep there places.  Neat and tidy?  Or does everything look to be a mess?

– What is the demographic of the town?  Is it mostly owner occupiers, or mostly tenants?  (refer http://www.myrp.com.au).  It would be better to have a higher proportion of owner occupiers as they tend to be more house-proud.

– Is there public transport nearby?  (Preferably a train station…. bus routes can be moved at any time). 

– How long would it take to commute to the CBD?  (Since this is where a lot of jobs are, and let's face it, you want your tenant to have a job).

– Are there schools nearby?  Family tenants will need this.  I think it is more important to be closer to a primary school since this is the era when parents tend to take their kids to and from school.  Secondary school kids are a bit more self-sufficient.

– The property itself; get a building and pest inspection done.  Attend the inspections and get the inspectors to point things out to you, and ask bluntly if there is anything they see that would need doing and how much they suppose it would cost you.

– Look at the cost of the water rates and council rates as indicated on the section32 document, which the real estate agent should be able to provide you when a property is up for sale.

– Chitchat to residents of the town.  Older people tend to have lived in the area for a while and seem to know what's going on.  If you see someone at the front of their home gardening, stop by and introduce yourself, say you're thinking of moving to the area and ask them what it's like.

– Are there shops nearby?

– What is the current smallest block size permitted in the area?  Council planning dept can tell you.  Let's say it is 300m2.  This will mean that a block of 680m2 could get subdivided (ie someone could sell their backyard and driveway).  This is great it if you own or are looking to buy such a place.  Could be a good thing to do, subdivide.  Regardless, the minimum block size tells you how built up the area is likely to become.

– What is the zoning on a particular property?  You might be thinking you'll whack a granny flat in the backyard and rent that out too, but would you be allowed to?  On the other hand, how awesome if you were looking to buy a house on a large block, and secretly discovered it was recently rezoned for medium density, and that you'd be allowed to bulldoze the house and build three levels of units and sell them off for a big profit.

etc etc.

You do not earn interest on monies in an offset account.  However the amount in the offset account reduces the "principal amount that is charged interest".

Using this strategy, you don't pay off the principal.  You simply aim to have your ofset account balance equal to the principal amount…. at which point the interest payable would be $0.

The interest rate would be the same on an IO or a P&I loan.  So in essence, if a P&I loan required you to pay $1400 a month, but an IO loan required you to pay only $1000 a month, then if you chose to get an IO loan, you could pay $1000 month to that to cover the interest, and deposit $400 a month into the offset account, and you'd achieve the same result. Of course, due to the increasing balance in the offset account, the "interest only due amount" would decrease with time.  So let's pretend that in month 2, the interest due was only $995.  Then instead of putting $400 into the offset, you'd put $405.  Such that you are in essence paying at the same pace as the P&I loan.

You will generally have to wait till it settles.  You could ask your solicitor to request that the vendor's solicitor release the deposit to you early, which would require the vendor to sign a document agreeing to this.  It's probably unlikely they'll bother with this, when there is such a short settlement period.

Pleasure

I think the situation can change dramatically if you have kids.  The reason is because quite often, the schools they are permitted to attend are related to the postcode catchment of where you live.  So.  If you are renting and get into a situation where landlords evict you every 6 months, you might also have to shift your kids to a new school, which is very disruptive.

About the electricity question.. I know that you have to provide electricity to the top of the driveway crossover (ie the concrete on what would otherwise be the naturestrip).  If for some reasons the electricity company decides that a new electricity pit has to go in (which wouldn't necessarily be on your side of the road.. so diggingunder hte road would be required…) you'd be up for about $6k for the pit.  That was the case when I enquired about it around a year ago.  It's actually really hard to get an idea of "in general how much would it cost because I'm thinking of getting into the subdivision game".  They don't like quoting figures on a non-specific situation.  However I eventually got answers out of them by saying "OK, so what things will I absolutely have to do, and what would be the worst case costs on that based on other cases you have seen?  And if a new pit is required, what do the workers have to do (eg dig under road?) and what would be the ballpark cost of a new pit?"

Don't be afraid!  I reckon you need to be more afraid of NOT investing.  If you retire on your superannuation as your only source of income, you could be in for a rude shock.  Best to take control of at least a portion of your retirement income.

Where are you located?  People might be able to help point you to some suitable suburbs or dwelling types to help you get started with your hunt.

To get the homebuyers grant, you have to live in the property for a bit before you rent it.  6months I believe.

Back to the matter of getting financially independant… forget about this business of living off the rent in the first year of ownership.  Think more like this: 

– Hold onto the asset until you've paid it off, at which point the rent can supplement your income, or be an addition to your superannuation
or
– Hold onto the asset for a few years till it has gone up in value, ask the bank to revalue it, and the amount by which it has gone up in value (known as "equity" can be used to buy a second property.  This is where your personal wealth starts to get really interesting.  You repeat this process a few times, and then in 10 or 20 years you sell a couple of houses, pay down all the other debt, and bam.  You are debt free and the proud owner of a bunch of houses that pay you rent as an income.  Yay!