Investors who make money, regardless of the prevailing market conditions, pay attention to detail, even when they seek out expert advice. It's vital to cover every base to deal with the ups and downs of the market.

Location, location

A poorly-located apartment or house is an investor's worst nightmare. Avoid secondary locations and streets that have a lot of commercial activity. It's also smart to be close to public transport, restaurants and schools, but preferably in a quiet spot. Veteran estate agent Bill Cook, of Williams Batters, says one of his golden rules is "don't buy on main roads but be close to main roads". This is sound advice: busy roads give quick access to transport and amenities. Investment properties also should appeal to owner-occupier buyers, not just to other investors.

Profits and tax

Australian house prices have grown by an average 11.5 per cent a year since 1926, according to AMP Capital Investors. Unlike other countries, Australia's tax rules positively advantage property investors. To be able to claim deductions through negative gearing for the losses incurred on a property is a major reason why 10 per cent of taxpayers own one or more income-producing residences. Be careful, though. Negative gearing delivers the greatest tax breaks to high income earners and is of little benefit to those earning less than $80,000 a year.

Future wealth

Is it best to buy property that can be expected to deliver a solid capital gain over the long-term or acquire a "cash-flow positive" dwelling that generates high rents but lacklustre capital growth? Property adviser Paul Osborne, from Secret Agent, says those who chase capital growth "always make a forward estimate, so in many ways you are speculating about what is going to happen down the track". Even so, most investors focus on properties that offer sound prospects for capital growth; they see this as the best way to build equity and achieve financial independence.

Think like a tenant

What are tenants looking for? Martine Bannister, who manages rental properties in Melbourne's north for Jellis Craig, says most tenants expect a dishwasher and airconditioning. They will also pay more for places with new kitchens and bathrooms. "People want the mod cons these days and you lessen your vacancy periods if you have them," Bannister says. Security features and open floor plans attract tenants, too. The ideal layout for a rental property is one in which the bathroom or lounge-room is sited between the bedrooms. This maximises privacy and is valued by tenants who share.

Getting the benefit

Tax breaks shouldn't be the be-all and end-all of your investment approach, but once you've bought a property try to get every deduction you're entitled to. The normal deductible expenses of interest, management fees, repairs, insurance and council rates are top-of-mind for many investors, but other allowable expenses can be missed. These include claims for land tax, depreciation and borrowing expenses, such as loan set-up fees, rate lock-in fees and stamp duty on a mortgage.

Hang on to all paperwork. If you buy an established apartment or house, the vendor may not pass on the property's depreciation report, if one exists. You can fix the problem by hiring a quantity surveyor to produce a new report on the outstanding depreciation. Claims can be made for depreciating the building structure of newer apartments as well as for replacement bathrooms and kitchens, heating and hot water systems, even the curtains.

Finance checklist

Before you look for an investment property to buy, run a check on your finances and estimate what could happen if an investment goes pear-shaped.

Your list of worst-case scenarios shouldn't be limited to external factors such as the impact of a fall in property values or an increase in borrowing costs. Consider your personal circumstances, too. What will happen if you lose your job? Will you be able to service a large debt if you move from being a two-income household to a single-income one?

Once you've determined how much you're prepared to borrow, you should build in buffers. It's smart thinking to project that interest rates will go up by 3 per cent. Always assume there will be added costs, such as your property being without a tenant and income for a six-week period. If you plan for these wildcards, you'll cope a lot better if they do eventuate.

Case study: Dad's advice proves a valuable investment 

When 19-year-old Lara Stephens bought a rundown single-fronted cottage in Hamilton Street, Seddon, in partnership with her father, Craig, last November, she was doing what many young people do.

Buying an investment property, rather than a home to live in, has become an accepted way for young Australians to get a foothold on the property ladder.

In Lara's case, it helped that her dad is a fourth-generation estate agent, with plenty of property experience.

Family affair: Craig Stephens is helping his daughter, Lara, into property investment. Photo: Michael Clayton-Jones

Craig Stephens, of Jas Stephens, bought the two-bedroom house for $600,000 through another agent at a State Trustees auction. Lara, who is study marketing at RMIT University, has since co-ordinated a modest renovation of the property, which has just been offered to the rental market for $450 a week.

The bathroom and kitchen will eventually need major work and the house will need restumping, Craig Stephens says.

"But a cosmetic renovation to the tune of $30,000 through Bunnings and Ikea allowed us to clean it up and rent it out."

New pendant lights were bought from the Swedish homewares giant, and the cottage has new carpets and fresh paint throughout.

Lara is learning how to handle a mortgage, her father says. "I'm teaching her how to renovate and source various materials and introducing her to various tradespeople."

Feature property: 

2 Pentland Parade, Seddon
Price guide: $780,000-$840,000

This late-Edwardian weatherboard has lovely fretwork on its facade and an enviable location that would appeal to city-based workers looking to rent a house close to the train station.

The double-fronted property's solid public transport links are demonstrated by the fact that it takes two minutes to walk from the front door to Seddon station. From here, it is four stops to Southern Cross station in Spencer Street. The three-bedroom house is also within walking distance of Middle Footscray station on another train line.

Agent Greg Carruthers says the house's four front main rooms are extremely large and there are three fireplaces.

"It is on the corner of a lane and you have laneway access through a roller-door down the side, not at the rear: you can fit a couple of cars in there."

He says the high standard of the front and rear gardens reflect the vendor's green thumb, and the property has appeal to both owner-occupier buyers and investors.

"The extension at the back is about 20 years old and it's a bright modern space," Carruthers says. "Local schools are within walking distance and it's a four-minute walk to Seddon Village, which has gone ahead in leaps and bounds with eateries opening up and some new developments."

He says the house would attract a rent of $480 to $520 a week. In the rental market, the property ticks boxes for hospitality workers and other shift workers with young families who need to be close to a station.

For auction May 3 at 1pm, Jas Stephens, 0417 566 851.

Or try these

4/34-36 Brooke Street, Northcote $470,000-$520,000

The two bedrooms in this upgraded ground-floor unit are separated by the lounge room, providing privacy for share households. High Street's cafes and restaurants are nearby, and there is a large north-facing garden on title. The property has a modern stone kitchen and meals area, and is leased until January at $1825 a month. It goes to auction on April 26 at noon. Jellis Craig, 0401 655 005. More photos: Domain.com.au

203/280 Neerim Road, Carnegie $450,000

Walter is a new boutique development in the heart of Carnegie, near Monash University Caulfield. This one-bedroom apartment offers an open-plan layout with 55 square metres of internal space, an eight-square-metre terrace, plus a car space and storage cage. It is expected to rent for $350 to $390 a week. BPM Corporation, 9555 9821. More photos: Domain.com.au

74 Burnell Street, Brunswick West $680,000-$750,000

This two-bedroom cottage could easily be rented out. The home's spacious floorplan includes a central lounge room, dining room and an open-plan kitchen with stainless-steel appliances and dishwasher. It is close to schools, parks, the Melville Road tram and Sydney Road. The property goes under the hammer on May 3 at 12.30pm. Nelson Alexander, 0418 315 490. More photos: Domain.com.au