Buying an investment property
Investing in property made easy
Our beginners guide about buying an investment property
The journey to buying an investment property is similar to venturing into the great unknown and can be filled with endless stumbling blocks and difficult decisions that need to be made. We’ve gone to great lengths to break down the jargon barriers and help you navigate your investment journey with ease.
Unlike a home, buying the right investment property is purely a financial decision. So it’s important to think like an investor and understand the goals and strategies behind successful property investment.
Buying an investment property can be a life-altering venture with many highs and lows along the way. Either way, our Home Lending Specialist is here to help simplify the process.
Here are some key points to consider when thinking about investing in property:
- Set yourself a strict purchasing budget
- Understand the amount you’re able to borrow
- Know what your deposit amount needs to be
- Consider how long you intend to keep the investment property
- Understand what equity you already have and how it can work for you
- Know if it’s going to rent to short term or long term tenants
- Understand what your monthly repayments will be
- Work out a savings plan for unexpected costs
- Understand the upfront and ongoing costs of owning an investment property
- Once you’ve settled on a suburb, research the area and home pricing
- Understand the impact of positive and negative gearing
Planning your investment strategy
Planning is the key to successful investing. Creating a plan will help you find investments that fit your investing time frame and risk tolerance, to help you reach your financial goals sooner. When purchasing an investment property it’s important to consider all your expenses, including not only the more obvious upfront costs, but also the ongoing costs of property ownership too.
- Stamp duty – we’ve got a handy stamp duty calculator here
- Lenders mortgage insurance – only required if you have less than 20% of the home deposit
- Legal fees – for completing conveyancing and title searches on your new home
- Building and pest inspections
- Home and contents insurance
- Property valuation
- Connection fees eg. water
- Real estate leasing fees or fees associated with renting the property
- Mortgage repayments – most lenders will offer a flexible repayment option suited to your pay cycle.
- Council rates – houses generally attract a high fee than units
- Body corporate fees – apartments and units often charge residents body corporate fees for the general maintenance of common areas
- Utilities eg. gas and water
- General maintenance eg. cleaners and gardeners
- Repairs and breakages eg. leaking taps
- Landlord insurance eg. covers you in the event the tenants refuses to pay rent
- Property management eg. should you hire a vendor to manager the rental process
Working out your buying budget
What you can borrow and afford
Now you know what your upfront and ongoing costs will be during and after purchasing your investment property, it’s important to drill down on your budget. Every investment journey should begin with a clear budget in mind.
When organising your budget don’t forget to also include what you plan on saving per month to help you work towards any future financial goals you might have. Remember your borrowing power will be likely be affected by your income and also your expenses.
Starting your property search
Choosing where to buy an investment property is important, as it can impact your potential capital growth and rental yield.
- What is the population like? Is it growing or declining?
- What are the economics of the area is there any gentrification going on in the area where richer people are moving in and thus improving a suburb?
Doing this research and understanding suburb dynamics and how suburbs grow can help you to choose a suburb that is primed for growth and increase your chances of getting a great return on investment.
Unfortunately, this analysis is not easy to do. To help with your property search, our Home Lending Specialists able to help you get your search listings on the go and provide you with the latest information on new listings, auctions, and more.
Applying for your home loan
When you’re applying for an investment property home finance, we will assess you on many factors. One factor will be what equity you currently have. The assessment will be broken down into three categories; what you earn, what you owe, and what you own.
Some of the factors we will assess you on during your home buying journey:
What you earn
- Salary – you’ll likely need to supply two of your most recent payslips as proof of employment
Investments – any earnings from shares, or managed funds, we will likely require proof
- Rental income – if you receive rental income you will likely need to supply statements
- Government income – if you receive government support
What you own
- Savings eg. a term deposit amount
- Substantial personal assets eg. a car
What you owe
Credit cards or loans eg. students debts, leases
Here are some important documents you’ll need as proof of identification:
- Current driver’s licence and/or current passport or birth certificate
- Council rates notice, credit card, debit card, Medicare card, health care card
Settle and manage your investment property
Once you have reached an agreement with the seller, the settlement process can begin. On settlement day, your legal and financial representatives will ordinarily meet with the seller’s representatives to transfer the ownership of the property from the seller to you (the buyer). The settlement date is set in the contract of sale, and is typically between 30-90 days.
To prepare for settlement, you’ll likely need to do the following:
- Contact a solicitor or conveyancer to review your contract of sale before you sign it
- Return your signed contract of sale to the seller or the seller’s agent
- Speak to us to start your home finance application. Ensure you have all your necessary documentation
- Speak to your solicitor or conveyancer about requesting any property searches you may want or need
- Organise a building and pest inspection
- Ensure you have enough funds to cover the property settlement and solicitor’s fees
- Organise your final inspection of the property. This is usually done on the day of settlement or close to it
- Collect your keys on settlement day and celebrate on owning new property
Ready to proceed?
Whether you want to switch to Islamic or you prefer authentic Islamic finance, get started online.
When you are a beginner in the property space it can be completely overwhelming. There are so many different strategies that you need to look at, so many different ways to invest and so many different areas that you can invest in.
Here some top tips to consider when purchasing an investment property:
- Choose the right property- unlike your residence, look for a property with low maintenance that’s going to save you upkeep costs further down the track
- Know where to buy – ideally you’ll want to focus on high growth areas and properties close to public transport, schools and local amenities
- Seek professional advice – if you’re unsure about investing in real estate, seek professional direction
- Understand the market – the market can fluctuate in pricing due to many external factors
- Low vacancy rates– understand what the vacancy rates in the area are
- Wide appeal– depending on the area, aim to select a property with broader appeal for various renters such as young families, couples etc
- Positive or negative gearing – most property investors will borrow to purchase. Negative gearing occurs when the income from the property is less than your expenses
- Capital gains tax – should you choose to sell you may have to pay a capital gains tax