house and stacks of coins

How to Invest in Property: A Beginner’s Guide

1/08/17

Have you been considering entering into the property market? The time is now!

Low-interest rates, strong property price growth, and low vacancy rates all contribute to a favorable buyer’s climate in the property realm.

If you want to get on the bandwagon but don’t know how to invest in property, read on for our failsafe advice on how you can make an investment property work for you right now.

There is no better time to invest in Australian property than right now. But where do you start? Read on for our exclusive guide on how to invest in property.

Crunch the Numbers

Figure out how much cash you can afford to invest and work out a reasonable budget to cover your loan repayments. You want to make sure that you can keep up your mortgage repayments for as long as you need to and avoid having to offload your investment in times of financial stress.

List all your assets, including income, and your expenses. If you have solid employment, a clear credit history, and some assets, you should have no problem getting a loan.

You can check your credit rating before you approach an institution or get pre-approval from a lender or mortgage broker.  Just once. Repeated inquiries will ‘red-flag’ your credit record.

Get Informed

Now that you know how much you can afford to spend, you can start to look at realistic investment opportunities.

Be wary of get rich quick schemes – if it sounds too good to be true it probably is. Property is always a mid to long-term investment. Figure out where you want to be in 5 or 10 years’ time and base your research on this.

Do your homework. Find out everything there is to know about the area where you want to purchase. Talk to the locals to get a true impression of the area. Investigate whether there are changes on the horizon which might boost or negatively impact the value of the surrounding property.

A house with many rooms in an area near a university has more value than one with a large backyard for children to play in and vice versa in family-centred suburbs.

Find out what the going rental rates are in that part of town and which suburbs or roads you can charge more for.

Feeling overwhelmed? Get professional advice if you need help figuring out how to invest in property that meets your long-term goals and budget.

How to Invest in Property At The Right Price

Your goal is to purchase a property that will increase in value over time.

If you have done your homework properly, you should be able to tell which properties are a steal as well as which are overpriced. A professional independent evaluation can be a good idea if you are unsure.

Vacant land in a good area is often a wise investment. It may not bring in any rental income but the value could increase if the area undergoes a boom.

Take all the cost factors into account. Buying a fixer-upper at a low price could cost you more in the long run if you are unable to find tenants quickly due to the repairs. A free-standing house could cost more to maintain than a home unit.

Get a building inspector in to make sure that a good price is not due to expensive hidden maintenance factors.

Remember buying an investment property is a business decision, not an emotional one – be ruthless.  Don’t fall in love with a charming cottage that will cost you money in the long run just because you ‘had to have it’.

Getting a Mortgage

Once you have found a property at the right price and in the right location, it’s time to rake up the finances to pay for it.

Armed with your budget and a list of your assets and liabilities you can start looking around for a suitable lender.  Any interest you pay on an investment loan is tax deductible but some borrowing costs aren’t – make sure your financial institution gives you all the facts on these.

Keeping your home mortgage separate from your investment property loan can help to maximize your tax benefits.

The big question is whether to choose a loan with variable rates or fixed rates. Variable interest rates have proven to be cheaper over time, but it is not unheard of to get a fixed rate loan at just the right time which pays off in the long run.  The choice would largely depend on your budget.

Set up your investment loan as interest only rather than principal and interest in order to increase its tax effectiveness.  The option to pay interest in advance is also an attractive one for investment finance.

You can use equity from another property to allow you to borrow more money against your investment property and increase your tax deductions.

Tenants

Good tenants are the key to making your financial goals a reality. You have already gone through all the steps of how to invest in property that is attractive for rentals in your area.

Once you have purchased your property, you will need to take care of the details to attract reliable renters.  A well-presented property is key to this.

If your new acquisition has been on the market for some time, it may need a lick of paint and some work done to spruce up the garden. These are all costs that need to be considered up front when purchasing a property.

It pays to remember that if you ever want to sell your investment property down the line, any permanent changes also need to be attractive to future buyers. If you hope to attract owner-occupiers, they will appreciate a blank canvas to work on.

If you are intending to rely on a property manager to take care of the day to day running of your investment property – that’s another expense you will have to bear.

So now that you’ve considered all the options, it’s back to square one – crunching the numbers to find out how to buy an investment property that will bring you prosperity over the long term.

Once you have a clear idea of your aims, we can show you how to invest in property that meets and exceeds these.  Get in touch and let’s talk.