Investing in property, When done right, can help you to build long-term
wealth, and who doesn’t like the idea of an additional income stream?
(Imagine what you could do with that!) The really great thing about
property investing is that just about anyone can understand the
principals. If you’re thinking about building wealth for your future this
way, here’s a step-by-step guide on how to go about it.
Step 1: Discuss your borrowing power
The first step involves a friendly chat with your mortgage broker about the finance set-up.
They will run through your personal financial circumstances and help you determine your
borrowing power – which is the amount a lender may be willing to lend you. Your borrowing
power may be very different for an investment property than for a home to live in yourself.
Like all property purchases, you’ll need a deposit. If you already own your home and it has
appreciated in value, or you’ve paid down your mortgage somewhat, you may be able to
refinance to access equity to fund it. They can explain how this works and the kind of loan
that will best suit your situation. They can also organise pre-approval so that you can set a
purchasing budget and be confident a lender will come through with the finance when the
time comes to start investing.
Step 2: Formulate an investment strategy
Ask yourself what your ultimate objective is – do you want to build a big investment portfolio
of 10 properties or more and make a business out of it? Or are you more interested in
concentrating on paying off your own home, perhaps using an investment or two on the side
to generate some money to do it?
We recommend seeking advice from your financial planner or professional tax advisor when
formulating your investment strategy. Maximising tax advantages is a big part of property
investing and knowing what they might be in your personal situation is key.
Step 3: Set your budget
There are many costs to factor into your budget when buying an investment property. The
financial side of a successful property investment is a balance between costs, income, tax
deductions and how they affect your overall cash-flow. The costs to factor in may include
the following:
● Initial costs
● Deposit
● Loan establishment fees
● Lenders’ mortgage insurance (if you have less than 20% deposit)
● Stamp duty (calculators are available here)
● Conveyancing and legal fees
● Building and pest inspection reports
● Quantity Surveying fees – to create your Depreciation Schedule for the fixtures in the
property, so you can maximise your tax deductions (after purchase).
●
● Ongoing costs
● Rates/government taxes
● Insurance
● Mortgage repayments
● Body corporate fees
● Utilities not paid by the tenant
● Property management fees
● Repairs and maintenance costs.
Step 4: Do your research
The key to buying the right investment property is to spend plenty of time researching.
Property investors usually focus on two key financial returns – capital growth potential
(which is the growth in the property’s value) and rental yield (the income the property will
generate from the tenants).
These factors are driven by supply and demand, so try to find a property that will be in high
demand by tenants and future potential buyers. Ask us for assistance with the right property
market data to inform your property searches.
Once you’re set on a property, be sure to organise building and pest inspections. You’ll
want to know that the property is structurally sound and free of unwanted guests before
making an offer or going to auction.
Step 5: Finalise your finance
The final step involves us helping you secure an investment loan that suits your financial
circumstances and goals. Ask your mortgage broker to get you pre-approval on a loan for
the specific property you want to buy before you make an offer or buy it auction, so you can
have a realistic ceiling price to work with during the negotiations.
This step is the most important one of all if you’re buying at auction – you will be required to
put your deposit down on the spot and it is not refundable if the lender does not agree the
property is worth the price you paid and won’t lend the amount you need to complete the
purchase. If you are buying under offer, we recommend you include a ‘subject to finance’
clause in the sales contract, to cover this contingency.
If you’re thinking about joining the thousands of Australians building wealth for the future
through property investment, Talk to your mortgage brokers now to give you expert
guidance about investment loans and structuring your finance.