Are you looking to get a foot in the property market by purchasing your first investment property?
Purchasing an investment property can be overly daunting at times, especially if you’ve got limited experience in the Australian property market. For this reason, it’s vital that you spend ample time researching your financial capabilities, the processes involved in purchasing an investment home and the additional fees and unexpected costs associated with purchasing a property.
To help guide you through the property investment process, here is a comprehensive checklist you can follow.
Analyse Your Financial Position
The first thing to consider when purchasing an investment property is whether it is a financially viable option for your current situation. Speak to a local property investment service provider to get a better understanding of what’s required to give you a strong start in the property market. A few questions you should be asking yourself is:
- Can I afford to purchase an investment property at this point in time?
- Do I have a healthy cash flow?
- Am I saving a reasonable sum of money each month?
- Have I considered the long-term requirements of purchasing a house?
Find Out How Much You Can Borrow
After you’ve analysed your financial position and the available disposable income you have to invest, speak to your local broker about financing the property. They will be able to get an overview of your current financial position and give you an estimate of the amount you can borrow.
As banks and credit unions may offer you more than you personally believe you can afford, be sure to match your available cash flow to the repayment amounts, rather than selecting the largest sum offered. It’s also important to lower your debt where possible before purchasing an investment property as the lower your debt, the greater your cash flow and the more you can borrow.
Set Investment Goals
Setting goals is a terrific way to keep track on the success or shortfall of your property investment decisions. Note down what you are hoping to achieve from investing in the property market and where you see yourself in the future, 10-30 years down the track. Keep an overview of how your investment efforts are tracking throughout the loan duration.
Get A Pre-Approved Loan
Having a loan pre-approved before purchasing an investment property will allow you to set a budget and speed up the purchasing process. When requesting a pre-approved loan, make sure you understand what is involved in the loan and what to avoid.
Understand and Research the Market
House prices, rentability and market trends are just some of the key investment factors that change over time and depend on the location of your property. While it can be extremely difficult to predict property market movements, it’s important to do your research to gauge the market conditions. You don’t want to buy in a grossly over-inflated market, but nor do you want to hold off for too long and miss the boat by waiting for that perfect moment where the market bottoms out – it is almost impossible for even the most savvy of investors to time the market perfectly.
It is also vital to research the rental market in your area. Who are they and what are they looking for in a property? Also, is there an over-supply or an under-supply of rental properties? If there is an over-supply, you’re increasing the risk of having to rent out your property for a lower amount than what you’d calculated, or not securing a tenant at all. If this is the case, then you’ll want to move on and look at properties in another area where there is a higher demand for rental properties.
Consider looking into purchasing at a strata complex with shared costs for common areas, insurance and similar. If you run into any conflicts, your local strata lawyer will help you navigate local laws and disputes.
Consider Additional Costs
Don’t forget there are quite a few hidden costs you may neglect to consider when purchasing an investment property. Some of the most common additional costs involved with purchasing a new property include but are not limited to:
- Stamp duty
- Conveyancing fees
- Loan application or establishment costs
- Loan mortgage insurance
- Pest and building inspection costs
Ask your property investment expert about the additional costs involved in purchasing your new home so there are no surprises.
Understand Negative Gearing
Negative gearing is quite a complicated system you can use when the costs of taking out and maintaining an investment are greater than the income you receive from it. It allows you to use your investment loss to offset the income you earn, meaning you may end up paying less tax. Understanding negative gearing is vitally important when looking to invest in property – and might or might not be right for you.
Find the Right Property at The Right Price
There’s no doubt that finding the right investment property will take time and be stressful. However, it’s important to view and enquire about tens, if not a hundred homes before making your decision. Even if you believe you have found the right house, there is no harm in viewing additional properties to ensure you’ve made the right decision.
Make Your Investment Property Renter-Friendly
When purchasing your new property, it’s important to understand its rentability. While you may see the home as a place you’d be happy to live in, is it appealing to potential renters in the local area? What is the demographic for that area? And what would their search criteria be?
The provision of allowing pets on the property is a key factor that many renters look for and increases that rentability of your home. With over 63% of households including a pet, it’s important to look at the pros and cons of making your investment property pet-friendly. This is just one factor to consider when ensuring your property is renter-friendly.
Another big consideration, especially for young families, is the security of the rental property. Many renters look for homes that have durable security doors and windows to keep intruders out. Another benefit would be to have security cameras installed to help deter would-be criminals from attempting to break in to the home.
Finally, here are some quick tips to keep in mind when searching for the ideal investment property:
- Don’t get emotional – this purchase must be a head decision, not a heart decision
- Speak to neighbours about the property and local area
- Don’t rush into purchasing a property