Buying an investment property? Here are some questions to ask first.

buying an investment property

It’s a good feeling when you get to the stage in your life and career when you can start thinking about creating new investments. In Australia we’re big fans of investing in real estate. Generally, we focus on our primary residence first, and once we’re comfortable with that we move onto adding to our real estate portfolio.

It’s a big step to take, and there’s a lot that needs to go into making the decision on buying an investing property. Here are some questions you need to think about.

Can you afford it?

You need to know our finances inside out and be fully aware of what the investment property will do to your cash flow. Initially most investors try and have a deposit of 20% or more of the home’s value ready to go, as this means they won’t have to pay LMI (Lenders Mortgage Insurance) fees. If you’ don’t have the 20% deposit, you need to factor in these extra expenses.

There are large initial expenses like stamp duty, conveyancing fees and pest and building reports. Then there are ongoing expenses too, such as council and water fees, management fees, landlord insurance and property maintenance. It’s not just a case of being able to manage the mortgage repayments over and above the rent received.

You also need to ask yourself if you can afford the property if nobody is renting it out. Are you in a position to cover the entire mortgage without the rental income?

Do you have the time?

An investment property isn’t something you should wander into without doing plenty of research. This takes a lot of time and energy. If you’re time poor and unable to dedicate a significant amount of hours into deciding whether you can afford a property, coming up with a budget for your investment and then actually finding a property, you may be rushing into an investment that doesn’t suit you.

Where to invest?

The location of your investment property is important and needs to be thoroughly researched. It’s tempting to buy a property close to where you live, but this might not always be the best idea if the property prices are high.

Looking in more affordable areas will mean you have to save up less of a deposit. It’s advisable to research the rental yield in the area and the demand for rental properties to get an idea of what kind of return you’ll be getting on your investment.

You may also want to spend a bit of time in an area and speak to the residents there before you decide to invest in it. Find out if there are any plans for future infrastructure developments that could affect the value of properties.

What type of property should you buy?

Your budget, your personality and your future plans are all going to affect the type of property you wish to buy as an investment. For a start, you should look for appealing features like a lockup garage, multiple bathrooms and so on, which would make it easier to rent out.

If you’re thinking you might move into the home once your family grows, then you will want to be looking at three- or four-bedroom houses. If you’re looking for a holiday rental in a beachside suburb, then something small and easy to maintain might fit the bill. If you’re handy on the tools maybe a ‘renovator’ will be nice and easy on the budget and give you a project to move forward with.

What loan should you choose?

The home loan you choose is extremely important and could be the difference between a successful investment and an unsuccessful one. It would be wise to talk to a reputable and recommended mortgage broker to go over your options with you. Some of the things you should look at include what the interest rates are, whether you can choose a fixed or variable interest rate and what the loan repayment options are.

Who will manage the property?

Moving forward with the investment, you need to decide whether you’ll be managing the home yourself or employing the services of a property manager. This boils down to time and preference, but bear in mind the benefits of a good property manager can make life a lot more stress free for investors. They take care of all maintenance requests, find new tenants, ensure rent is paid and reduce the chance of having a vacant property. Plus, their fees are tax deductible expense.

Remember that buying an investment property is a big step, which can be in equal parts daunting and exciting. If you’re in the market for one and wish to get some professional advice about what direction to take, please get in touch. Henry would love to answer your questions and impart his valuable advice to you.