Property investors have rarely had it so good, even if it's at the expense of first home buyers.Rents are high, interest rates low and prices are creeping up again.

House values rose 1.7 per cent nationally in the March quarter, and soared 3.6 per cent inMelbourne, where prices had been moribund, while rents on units jumped 2.2 per cent,according to Australian Property Monitors. That makes the well-worn real estate agent spielabout property values doubling every 10 years sound plausible.

To achieve that, it would take an average 7 per cent rise a year. With record-low rates, growingpopulation and strong Asian interest in Australian property, such annual rises shouldn't be toochallenging.

As principal-home owners instinctively know, capital gains are tax free. Less appreciated, andsomething that drives economists spare, is that not having to pay rent is an implied income thatisn't taxed.

Property's other strong appeal is that it isn't superannuation, though it's attractive to DIY funds.Both sides of politics refuse to rule out more changes to super, making a geared property theonly decent tax break neither would dare touch.

Not even the government's wide-ranging, and largely ignored, Henry review on taxation would gothere. Even so, a way around the $25,000-a-year limit on salary sacrificing into super isborrowing to buy an investment property through a DIY fund - though the loan must be speciallystructured.

But forget a boom.

The Reserve Bank laid it on the line when a senior official, Luci Ellis, argued, in no uncertainterms, that ''trend housing price growth will be slower in future than in the previous 30 years''.Ouch. Left unsaid was trend growth has been about 10 per cent a year. But she did say thereare more likely to be ''mildly'' deflationary years as well.

So choosing the right place is more critical than it was for baby boomers, who rode the debtescalator as prices took the express lift.

Values will rise an average 5 per cent in the eastern capitals at most this year, property expertssay.

The single biggest influence on property is always population growth. No problem there. But thecredit isn't available, or rather isn't being demanded, to fuel another price boom. On thecontrary, owner-occupiers are more interested in paying down the mortgage. And Gen Ys areresisting the idea of having a huge mortgage in the first place.

Although the burden of mortgage repayments as a proportion of income has eased with record-low interest rates, it's still punishing because of high home prices, the jobs outlook or talk of atough budget.

''First home buyers have gone missing,'' says buyer's agent and property expert Kevin Lee,principal of Smart Property Adviser and a mortgage broker with Smartline. For once, investorsare more likely to be elbowing out each other, rather than first home buyers, at propertyinspections.

''This is a rare treat for property investors,'' says Joe Sirianni, executive director of mortgagebroker Smartline.

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broker Smartline.

Investors are armed with annual tax-deductible interest and expenses, while first home buyersmust make do with a one-off government grant and stamp duty concessions. Investors havebeen given another leg-up by state governments in NSW and Queensland, which have removedthe home grant and stamp duty concessions from established units or houses bought by first-time buyers.

As a result, loans for investors so far this year have jumped the most since the global financialcrisis, though are still running at a relatively low level by past standards, but fallen for first homebuyers, according to the Australian Bureau of Statistics.

The subdued housing construction that Australia has been experiencing since the globalfinancial crisis is a mixed blessing.

There are fewer opportunities for developing new properties with their better tax break in the 2.5per cent building allowance, but then it keeps supply tight, which is good for rents andvacancies.

Treasury expects a pick-up in housing construction will buffer the forecast winding down inmining investment later this year. There's something of a love-hate relationship betweeninvestors, who will continue to have the upper hand for a while, and their tenants - who are likelyto be the first home buyers who they've outbid.

If you can't beat them, why not join them?

First-time buyers should consider investing before they settle down.

One of the best ways of building wealth is by staying at home longer and buying an investmentproperty that you can move into later, or use the equity built up from it as a deposit forsomewhere to live.

On average, the gross rent from a unit (except in Melbourne and Hobart) is more than the two-year fixed mortgage rate of 4.99 per cent. At first blush, that would make it almost impossible tobe negatively geared since income would be greater than interest.

Alas, there are always maintenance and repair expenses, council charges, management agentfees and some periods without a tenant to be reckoned with.

The best rental yields are in Darwin, where units are averaging 6.3 per cent. But every city hasits exceptions. Yields in Sydney's Ultimo, for example, are closer to 9 per cent before expenses.

Melbourne has the lowest thanks to a glut of apartments, beginning with Docklands, whereprices are reportedly being discounted 25 per cent. There's also a vacancy rate of about 10 percent.

Worse, there's a backlog of new apartment blocks that will be completed over the next year,adding to supply and depressing prices and rents. This could even spill to middle-ring suburbs.

Perhaps head due south for capital gains: Hobart is proving the best performer, having theadvantage of coming off a low base.

The first decision for a property investor has to be the city in which to buy.

Unfortunately, looking down the street usually isn't a good idea, even though a property there ishandy to keep an eye on and you might not need a managing agent.

Looking further afield offers far more opportunities and reduces the risk of having all your eggs inone location.

After all, one area, say in Queensland, will have a different property cycle to one in Victoria. Youdon't want everything going up or down together, do you?

So don't rule out buying interstate.

An immediate benefit is you'll avoid a potential land-tax liability, especially if you intend to have aportfolio of properties.

In a boom town such as Darwin, you might even get the best of both worlds: higher rents andprice gains.

Even the Gold Coast, a serial underperformer for property investors in recent years, might becoming into its own now it has direct flights to Asia, where there are potential investors.

''I'd still be hesitant about an established apartment, but there are new developments in walkingdistance from [Gold Coast beaches] which cost $6000 a square metre compared with $11,000to $12,000 in Sydney,'' says Jason Anderson, chief economist at property economist MacroPlanDimasi.

One ready-made way of investing interstate is buying a Defence Housing

Authority (DHA) home. Properties are listed at dha.gov.au.

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These are let to defence personnel and can be anywhere from Sydney's upper north shore tothe back of beyond. Usually they are houses, but occasionally, new townhouses andapartments are offered.

They're sold under a leaseback, with the rent virtually government-guaranteed, payable whetheror not there's a tenant and reviewed annually.

The DHA does all the letting and property management for a fee of 16.5 per cent of the rent forhouses or between 12 per cent and 14 per cent for apartments and townhouses.

A lease is for nine or 12 years, after which you can sell or lease privately. But when it's up,you're on your own.

Location is always paramount when making property investment decisions.

Whatever you can afford must suit the demographics of the neighbourhood, which will alsodecide whether to buy a new or established property. New buildings come with extra taxconcessions and are likely to be easier to let with fewer maintenance issues.

By the same token, you will be paying a developer's margin when you buy. On the other hand,an established property lends itself to capital value-adding renovations and will have a scarcityvalue. But don't go over the top with renovations, which are notoriously difficult to budget for.

Often a lick of paint, new carpet, stove and light fittings are all that's needed.

''Most important are the kitchen and bathroom,'' Lee says.

Units are doing better than houses, the result of baby boomers downsizing and younger buyerspreferring to live closer to the city to save on transport costs. Even so, determining the betterinvestment between units and houses will boil down to the area.

In a young demographic close to the city, proximity to transport, amenities, cafes and jobs willbe paramount. For a house, you want a family demographic and it should be close to parks andschools.

Either way, you want somewhere with a growing population.

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