affordability.
An investment property is purchased with the purpose of making a return on the investment, usually
by:
- Receiving rental income for the property
- Intended future sale of the property
- Both receiving rental income, followed by resale.
The timeframe of an investment property may be either long or short term, for example when
renovated and resold at a higher price within a relatively short timeframe.
Borrowing amount for an investment property is determined by a number of factors, including:
- Current income
- Savings
- Current financial commitments
- Living expenses
- Credit history.
Different banks and lending institutions will vary in their requirements, however, a typical scenario
would involve the financier lending up to 90% of the property value, and proven savings of a minimum
of 5% of the property value required. Additional finances will also be required for taxes, legal costs,
stamp duty, and insurance.
It is often more difficult to borrow money for an investment property than for a residence you intend
to occupy. Your mortgage broker is invaluable in sourcing the right lender to suit your circumstances.
Be sure to engage a trusted professional such as an accountant or financial advisor to ensure your
investment loan is structured correctly, including keeping your investment loan and current home
loan separate for taxation and accounting purposes.
An online calculator will help with an estimate of your financial requirements to afford an investment
property, an indication of how much you can borrow, as well as tax you will need to pay. The calculator
will also provide an indication of loan repayments, as well as time to pay off the loan.
A professional mortgage broker will also help determine borrowing amounts and conditions for an
investment property.
Purchasing an investment property is a popular way to invest in Australia, and is usually an extremely
effective way to increase wealth and secure your financial future. It is important to note, however,
that to reach your investment property financial goals, the property needs to be managed effectively.
Receiving adequate rental income from your investment property, as well as receiving relevant tax
deduction entitlements, results in a relatively low cost to own an investment property.
Generally, an investment property should be considered a medium to long-term investment. It’s
important to ensure mortgage repayments are affordable for you over a period of time so it’s not
necessary to sell your investment property at an untimely moment and not reap the intended financial
rewards.
After you have a price range for your investment property in mind, there are a range of loan features
and costs to take into account. Once again, an experienced mortgage broker can work with you to
determine the right lender and loan type to suit your needs.
Your mortgage broker will provide you with lending options and assist you in gaining a pre-approval
for the appropriate lender. Pre-approval will give you a realistic idea of the amount you can afford to
borrow, which means you can begin your investment property search and be taken seriously by buyers
and agents.
When choosing an investment property, it is important to remember you are essentially buying the
property for capital growth. In this way, it is crucial to buy a property that is currently at the right price
and is expected to increase in value.
Speaking to professionals such as your mortgage broker and real estate agent, as well as undertaking
your own research is critical when buying a property for investment purposes. Have an idea on
property prices in the area to help you determine how much a property is worth.
Although it may be tempting to purchase an investment property in a particular area, purchasing a
property in an area you are unfamiliar with is not necessarily encouraged. If you are interested in a
property that is not in the same area as your place of residence, ensure you undertake thorough
research. This may include speaking to a trusted professional, real estate agents, and locals in the area.
Also, ensure you have an independent, professional valuation undertaken
Experts in the industry such as lenders and mortgage insurers may be able to provide you with up-todate
and valuable information on properties in various locations.
Varying types of property can also yield different results at times, so it’s important to speak to
professionals and do your own homework. As an example, vacant land won’t produce the rental
income a house will, but may appreciate quicker in value, depending on its location. Purchasing a
newer, brick home, may mean significantly less maintenance costs than purchasing an older,
weatherboard house. A particular area may provide a higher rental income, but lower capital growth.
As well as assisting with the initial investment property purchase, a professional estate agent should
help things run smoothly concerning maintenance and tenants at the property. This can include
finding the right tenant initially, finding new tenants in a timely manner if required, as well as
determining when to review rental price and ensuring rent is paid on time.
The property manager should also be able to provide advice concerning your rights and responsibilities
as a landlord, as well as tenant rights, and undertake regular inspections of the property to ensure
your investment is being well cared for.
When you are serious about a particular property and have your pre-approval in place, you may decide
to make an offer. This process may involve several rounds of communication between the buyer and
seller (usually via an agent) until an agreed price is reached.
A contract of sale is then prepared which outlines the purchase price of the property, settlement date,
and any conditions to be met prior to the sale proceeding. The contract of sale should be fully
understood, and discussed with a legal professional before signature.
Your mortgage broker will then assist you in transferring your pre-approval to final approval by your
chosen lender.
The settlement date stated in the contract of sale will proceed and the property transferred to you
when all the relevant conditions have been met.
A legal professional will work with you concerning the contract of sale and settlement.
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