Aussie shares went backwards in 2011 and superannuation mostly lost ground – so what should people be investing in this year? I suggest a serious look at investing in property and renting it out to tenants.

There are several reasons for this outlook, including soft house prices, strong rental demand and good total return.

One of the first rules of buying property is that you must not over pay and with property prices having dropped between 3-4 per cent in 2011, it’s seems like a good time to find a bargain.

Housing affordability is also attractive for investors right now. Disposable household incomes grew about six per cent in the year to September 2011 while dwelling values declined by a total of 3.3 per cent since May 2010, according to RP Data-Rismark research.

Rental demand is also looking good for investors: weekly rents across the capital cities rose 1.0 per cent over the December 2011 quarter and are 6.3 per cent higher than at the same time last year.

This means rental demand is exceeding supply, which is good for landlords.

If you feel you can buy cheaply in the current property market, and you can take advantage of the strong rental demand, then you have to think about your total return.

In the current environment, the return enjoyed by property investors around Australia has averaged 1.0 per cent over 2011, much better than the losses experienced in Aussie shares.

The average capital city apartment is now offering a gross rental return of 5.1 per cent. And that’s with a relatively flat property market – if you build future capital growth into your calculations, total returns are likely to be stronger in the next few years.

I believe this is a good scenario for property investors right now, but I advise potential landlords to hold out for a property that is in a sought after area, close to shops, transport and schools.

It’s no point having a rental property that you can afford when no one wants to pay to live in it.

As a final hint to first time property investors, I would urge you to take professional advice before entering into this: consult a solicitor or accountant about your tax position as a landlord, use an insurance broker to get the right insurances, and spend some time finding the right property management company.

It’s a good time to be a landlord, but only if you do it properly.

* Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.