Step 1: Talk to us about your borrowing power
The first step involves a friendly chat with us about your wealth creation goals and your finance structuring. We 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. We can explain how this works and the kind of loan that will best suit your situation. We 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 strategy when investing in property
Ask yourself what your ultimate objective is for investing in property – 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 are qualified property investment advisers and can help in addition to partnering with a financial planner and professional tax adviser 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. We are happy to help build your professional team, ask us for any contacts if you don’t already have a professional team on board.
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 (including landlords 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 when investing in property involves us helping you secure an investment loan that suits your financial circumstances and goals. Ask us 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, don’t wait to give us a call. Our mortgage brokers and property investment advisers will help you develop a fantastic property plan. We are here to give you expert guidance about investment loans, structuring and finance.