Investment property buyers understand how an investment property can offer investors the potential for capital growth and a regular income stream. Property has traditionally been one of Australia’s favourite asset classes for investing and this tradition is likely to continue for the foreseeable future.
However, it’s also important to remember that successful property investing is not just buying a property and hoping for the best.
As an investment property buyer, to maximise your chances of achieving your financial goals, you need to be strategic in your approach, and cautious of the costs involved.
Fortunately, with a little planning and good advice, owning an investment property doesn’t have to be overly complicated or expensive.
Through understanding the costs involved, and making smart decisions at every stage, you can put yourself in a strong position to build wealth, by becoming an investment property buyer.
1. Selecting the Property – Key Considerations
Investment properties can be a great way to generate income and build wealth over time. However, selecting the right property at the right price is essential to maximise your return on investment.
When considering an investment property, investment property buyers need to look at the location, the property’s condition, and the potential rental income.
The location is of utmost importance because it will determine who your potential tenants are and how much rent you can charge. The physical state of the property impacts the cost of repairs and maintenance. And finally, the potential rental income is important because it will determine how much profit you can make from the property.
Considering these key factors, helps investment property buyers to choose the right investment property.
Most people aren’t aware that lenders and mortgage insurers have ample data on different locations and property developments. This information can be valuable in ensuring that you don’t buy the wrong investment property.
When deciding to buy an investment property, always focus on making the right choice rather than just attempting to reduce the tax you need to pay each year. Ensuring a stable rent revenue stream is also vital because this cash flow will make the assets held more affordable and provide constant income.
Making the right investment choices can be difficult, but accessing the data held by lenders and mortgage insurers can give investment property buyers a real advantage. With careful research, you can make sure you pick the right property and avoid costly mistakes.
2. Cash Flow Management for Investment Property Buyers
When it comes to investment property, investment property buyers should always remember to do their sums, preferably with the aid of an accountant. A detailed budget is essential for ensuring that your investment property generates positive cash flow. Always keep track of your vacancy periods, repair costs, insurance costs, advertising charges, and property management fees.
Closely monitoring your investment property cash flow helps to ensure that your investment property remains a sound financial investment.
Once you own an investment property, the ongoing costs associated with servicing the loan are relatively low, as you receive rental income and potential tax deductions associated with borrowing costs, property maintenance expenses, insurance costs, body corporate expenses, and property management fees.
You should confirm with your accountant or the Australian Tax Office, what actual tax deductions you are entitled to claim, on the property purchased.
You can always maximise the return on your investment, by renovating or extending the property, to increase rental returns, reduce maintenance costs, and improve property value.
Proper planning with sound execution helps make property investment a great way to secure your financial future.
3. Find a Worthy Property Manager to Manage Your Investment
Before investing in a rental property, investment property buyers are advised to consult a mortgage broker to get an idea of what they can afford to borrow. Once you find a property that fits your budget, it’s then time to find a good property manager.
A property manager will take care of the day-to-day tasks of managing and maintaining the property, freeing up your time to focus on other things. They’ll also be able to screen potential tenants and handle any issues that may arise.
With a good property manager, you can relax and enjoy the benefits of owning a rental property, without worrying about the details.
4. Get The Inside Scoop on Your Suburb
It’s important for investment property buyers to do their own research before purchasing an investment property. Examine what other properties are available in the immediate area and speak to as many locals and real estate agents, as you can. They’ll let you know things like if a property you are considering falls within a key school zone.
It’s also a good idea to find out what lenders think of relevant suburbs through consulting your preferred mortgage broker.
Mortgage brokers play an important role in the real estate industry. They work with investment property buyers to find the best possible mortgage products and terms for their needs. Mortgage brokers also have access to a wide range of lenders so that they can shop around for the best rates and terms. As they regularly arrange loans for properties purchased in your area, they generally have great insight on local property trends.
5. The Right Mortgage for Investment Property Buyers
Mortgage brokers can be a great resource when choosing the right type of mortgage for your investment property. They have access to a wide range of lenders, so they can help investment property buyers to compare interest rates and terms, to find the best deal.
They can also guide you on which type of mortgage will suit your needs and investment strategy. For example, if you’re planning on holding the property for a long time, you might want to consider a fixed-rate mortgage. On the contrary, if you’re expecting to sell the property sooner, a variable rate mortgage could be a better option.
Mortgage brokers help you weigh the pros and cons of each option, and this will help you to make a sound decision, about which type of mortgage is right for you.
6. Investment Property Buyers Can Use Equity to Finance
Equity is the share of your home that you own outright. It’s the difference between your home’s value and what you still owe on your mortgage. Mortgage brokers can help you access the equity in your home so that you can use it as a down payment on an investment property.
This can be a great way for investment property buyers to get into the market without having to come up with a large sum of money upfront.
Equity from another property can also be used as a down payment. This is often referred to as “cross-collateralising”, and can be one way to finance an investment if you don’t have a lot of cash on hand.
However, it’s important to speak to a mortgage broker before taking this step, so that you understand the risks involved.
7. Get an Additional Tax Deduction on Your Investment Property with Negative Gearing
Negative gearing can offer investment property buyers tax benefits if the cost of owning and maintaining the investment property exceeds the income it produces.
Australian law currently allows you to deduct investment property losses from your total income for taxation purposes.
Before purchasing a property that offers potential for negative gearing, consult your accountant to determine whether negative gearing is a suitable strategy for you, and to ensure that you are fully aware of inherent risks associated with a negative gearing strategy.
8. Evaluate the Age and Condition of a Property
When deciding whether to invest in an investment property, it is also important to consider the age and status of the property and its facilities.
A newer property is likely to have more up-to-date features and be easier to maintain than an older one. Additionally, newer properties may be in more desirable areas, making them more attractive to potential tenants.
In contrast, an older property may be more affordable and offer more character than a newer one. Additionally, older properties are often located in established neighbourhoods with good schools and easy access to public transportation.
Make sure to have a professional building inspector conduct a thorough inspection of the property before purchasing it, and then at regular intervals after that. This is advisable because they will be able to identify potential problems that could cost you a considerable amount of money to fix in the future.
Using a licensed tradesperson to carry out any work required, is also a wise move, and will protect you against poor workmanship.
The licensed tradesperson will be more likely to do a professional job, and if something goes wrong, you should be covered through their insurance.
Buying a property, not in prime condition, allows investment property buyers to improve the property’s value, by fixing it up. Property upgrades have the potential to enhance capital growth and improve rental returns.
So, don’t be discouraged, if a property you are interested in purchasing, needs some work.
9. Ensure Your Property is Attractive to a Wider Market
When considering whether to buy a property for investment, consider whether you’d be happy to live in yourself. It’s important to always remember that you may want to sell the property one day. If a home appeals to investment property buyers as well as owner-occupiers, you’ll have a broader market for the property, maximising your sale price.
10. Commit to Your Investment Property for the Long Term
Property investment is a long-term proposition, and you shouldn’t expect property prices to rise immediately or continuously. Instead, be prepared to commit to your investment property for the long term. This will give you the time to build equity in your property, which you can then use to purchase a second investment property.
Finding the appropriate balance between financial stability and still being able to enjoy life is the key for investment property buyers. Economic security is very important, but life is not just about money; it’s also about enjoying the moment. So, keep in mind that unlike shares or managed funds, you can’t just sell part of your investment property if you need money.
Best Mortgage Broker for Investment Property Buyers
At Oz Lend, we specialise in helping investment property buyers to fund the purchase of their investment properties. We understand that no two investors are alike, and we take the time to get to know each of our clients to identify their individual needs and goals.
Once you’ve made your purchase, we’ll provide advice and assistance to you throughout the process of identifying the right loan for you, completing the application, attending to the lender’s responses to your application, gaining loan approval, and managing the lender’s requirements through to settlement.