7 Tips for Buying An Investment Property

Tuesday, May 1st, 2018

Building a portfolio of investment properties can be an effective way to create long-term wealth for
our future but it needs to be done strategically and with the right advice from property investment experts and lending specialists who understand how to give you personalised advice to suit your individual financial circumstances.

By schooling yourself with these 7 practical tips to buy an investment property, you’re off to a good start.

1. Choose the right property at a great price

If you’re investing to build long-term wealth, capital growth matters, so be sure to do your research and choose a property with a solid chance of increasing in value. Buying at the right price is also important, so talk to real estate specialists and look at recent sales in the area of your choice to properly understand the local market.

The better you get at knowing what a property is worth, the more likely you are to recognise a bargain when you see it.

Beware of real estate pitches pushing you to buy in markets you don’t know well, such as off-shore or interstate, and remember that the person trying to sell to you has a very real interest in making the sale – a hefty commission.

Experienced lending specialists and mortgage brokers have valuable data on locations and property developments and gaining access to these insights can help you make a smart decisions and avoid picking an investment that’s not right for you. Talking to your accountant can also be a wise move, in order to understand tax implications.

2. Crunch your numbers – cash flow really is king

Property investment is about long-term wealth, and although it’s true the right buy can sometimes deliver short-term gains, it’s better to go into it with all your numbers firmly understood to ensure you can sustain the associated costs for a sustainable future for the life of your mortgage. Any hint of financial stress can lead to you selling up before you’re ready and losing money – and that’s not what any investor wants!

Be realistic about the ongoing expenses of maintaining your investment property/properties and make sure your accountant explains what you can claim as deductions so you know the reality for your financial position.

Remember to factor in Stamp Duty, Land Tax and Capital Gains Tax.

3. Connect with a trusted Property Manager

The job of a property manager is to look after both you and your tenant. They help screen incoming tenants and collect all the paperwork and rent on your behalf.

With a professional property manager, you can be sure to be up-to-date on property law, your rights and responsibilities as a landlord – and the rights and responsibilities of your tenant. Knowing maintenance issues are identified and looked after is another benefit, although you will still need to approve all associated costs.

Another positive is that the percentage you pay to your property managing agent is tax deductible.

4. Find the right mortgage to suit you

With so many lenders, talking to a loan broker/mortgage broking specialist is recommended, as they have access to a range of lending institutions and can find a loan to suit your circumstances, with a competitive interest rate.

But do remember that there is little point spending hours and hours researching the best possible loan for the sake of saving a few dollars a week on your repayments, without also devoting a suitable time to researching the property market. Talk to your lending specialist about your financial goals and plans as a property investor so they can find a loan to suit you for the future – not just today.

Interest on an investment property loan is usually tax deductible, but it’s vital to get professional financial advice to structuring your loan properly from the start.

Depending on your circumstances, you may choose a fixed rate or variable loan – take advice from a loan specialist you trust.

5. Refinancing with existing property equity

If you already have your own home, or another investment property, refinancing to leverage from your existing equity can be a good option.

Equity is the amount of money in your home that you genuinely own and it is easily calculated by looking at the difference between the current valuation on your property and what you still owe on it.

So, if your property is valued at $600,000 and you owe $200,000, your equity is $400,000.

Using equity in your existing property means you can borrow more for your investment property – and this can increase your ability to claim tax deductions.

6. Check the property’s condition and age

Negative gearing should always be explored but even with that working for you, any major maintenance and repairs needed within the first few months of your investment property ownership can make a huge impact to your profits and cash flow.

Investing in a professional pre-purchase building inspection is always recommended. Regular maintenance checks done annually can also pick up minor issues to avoid them turning into costly repairs. It is always recommended that you choose professional and qualified tradespeople to carry out any work needed.

Buying a property that is not in top condition can be a good thing because as you repair the issues, the value immediately climbs – but do crunch your numbers to see what repairs are a good investment and what may not be worth attempting to protect your property’s value.

7. Appeal to tenants

Neutral tones throughout and a well-maintained kitchen and bathroom will help your property appeal to prospective renters. The better your house presents, the better quality of tenant you will be able to attract.

There will be a day when you want to sell the investment property so imagine it through the eyes of another prospective buyer before you commit to buying it yourself. Be realistic about its flaws and be sure you – and other people who may want to rent or buy it down the track – will be as forgiving. When it comes to investment property purchases, it’s vital to think with the head and not the heart.

For more advice about borrowing money to fund your property investment goals, talk to our specialists at Loans Actually.


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