You’ve decided that investment property is going to be your pathway to wealth and this could be for many reasons, retirement income from the rent, capital gains on your property portfolio or maybe you prefer to rent in the suburb of your choice and own properties elsewhere. No matter what inspires you to invest in property, you need to start somewhere, so before plunging headlong into the property market take a step back and consider these initial steps for planning your life in the property market.
What is your investment property destination
Be clear about what you want to achieve, and in what time-frames. Before you buy an investment property you should decide on your earning targets: will this be a negatively or positively geared investment? Will you invest in renovations to increase your rental return? Get your mortgage broker to arrange for a pre-approval of your investment loan, so you know how much you’re able to borrow before you start hunting for properties.
Don’t undervalue the costs
Write detailed plans about what you have to spend, how much you will have to borrow, and what the borrowings will cost. Before investing in property it’s vital to have a thorough understanding of your cash flow. Make sure you budget enough for renovating, repairs and maintenance as well as the estimated costs of management, insurance and rates, then calculate the rental income. And when you have purchased your ideal investment property do what you can to prevent costly maintenance issues arising, such as replace ageing taps.
Put in the hard yards
Burn some shoe leather before you buy a property. Go to real estate agencies in the area and pick up their ‘for rent’ sheets. See what rents are being asked for what kind of properties. Ask agents what properties they would like to manage. Go to some open days. Get a sense of which agents are up to scratch.
In depth analysis
Forewarned is forearmed, it cannot be stressed how important your research is before you commit, like with any other investment. Investigate the area you’re considering buying in, and whether there are a good range of amenities nearby like schools and shopping centres. You should also get professional advice on property values, recent sales and the growth outlook for the area.
Get loan advice
Loans for an investment property are different to regular home loans in terms of the options you have and the application criteria. For instance, you may be able to make interest-only repayments for some of the loan term, and get the rental income the property generates taken into account for the potential to borrow more. Get your mortgage broker to provide quotes from at least 3 different lenders.