We’ve had lots of clients come to us recently, wanting to take the first step towards buying an investment property. It might be something you have been considering for some time now, or something your accountant has suggested after finalising your Tax Returns.
If you want to buy investment property but you’re not sure where to start, here’s the first 3 things you need to do.
1. Understand the “why”
Why do you want to buy an investment property? Are you looking for capital gains over a set period of time, or is it regular rental income you’re after?
You need to know what’s important from the beginning because these things will help you to determine what type of investment property to buy.
For example, buying an old property to undertake renovations may provide good capital gain, but potentially won’t provide a good rental return (at least initially whilst you’re making the improvements). Alternatively, if your accountant has suggested buying investment property for negative gearing benefits, buying a ‘cash-flow positive’ investment property won’t really help you achieve that objective.
2. Research, research, research
Once you know what type of investment property to buy, spend lots of time becoming familiar with properties that fit your criteria. Online real estate sites are your best friend as they provide a vast amount of information about past sales, potential rental returns and the areas tenants like to live. Property market updates can also be valuable sources of information – but be careful. Property data can be skewed any way you want and analyses can be performed on old data, small data sets or compare periods that shouldn’t be compared. We often find reports that don’t reflect what’s actually happening in the market.
It’s very important to know your options from the finance side. Can you afford to buy an investment property? Do you have equity in an existing property that can help? How much can you borrow? How much are you comfortable borrowing? Just because you can afford on paper to buy an investment up to $500,000 for example, doesn’t necessarily mean you should. Do you want to leave capacity to fund vacancy periods or make improvements? Do you want to leave capacity to purchase a second investment property over the next year?
3. Get your finances in order (and arrange a pre-approval)
Some loans are better suited to investors; some lenders allow clients to borrow more than others. It’s important to select the right loan from the right lender to achieve your investment goals.
The right loan structure will not only help you better manage your property portfolio, but it can help you achieve the right balance ‘good’ debt and non-deductible ‘bad’ debt and save on interest.
Clients often come to us once they have found an investment property to purchase. The thing is however, in order to release equity and secure the best home loan structure for the purchase sometimes a restructure of existing loans is required – which is why it’s a good idea to talk to us before you start looking for properties.
To help get you started, download our FREE E-book for Property Investors here.
