Investing in an investment property can prove to be a highly effective strategy for building wealth and securing your future. It not only improves cash flow but also offers tax benefits, and is considered more stable than other types of investments, as everyone requires a place to live.

However, despite the exciting prospects, the entire process can be a bit overwhelming.

If you have been diligently saving and feel prepared to purchase your first investment property, it is crucial to be well-informed about some key aspects. This will equip you to make a prudent decision.

There are several reasons why property investment remains a favoured choice for Australian investors. According to research from CoreLogic, property investment has shown an annual growth rate of 6.8% for houses and 5.9% for apartments over the past 25 years up to 2018.

Image Source – CoreLogic

It is essential to acknowledge that property investment is not a one-size-fits-all approach. 

Source: CoreLogic

Before entering the property market, there are various factors to consider, such as your unique goals, risk appetite, and current as well as anticipated financial circumstances.

So, where should you begin, and how can you ensure that investing in property is the right decision for you?

Continue reading to learn more…

Can You Even Consider Investing in a Property?

Let’s say you just bought your very first house.

Congratulations on purchasing your first home and gradually paying down the mortgage. As your financial security increases, you may consider the possibility of affording an investment property.

There are a number of factors to consider when determining whether or not you can afford an investment property. These include:

Your financial goals 

What are you hoping to achieve by investing in a rental property? 

Are you looking for short-term profits or long-term growth?

The type of investment property 

Do you want to invest in a single-family home, a condo, or a multifamily property? 

Each type of property has its own advantages and disadvantages.

The location of the property

The location of the property will have a significant impact on its rental potential and value.

The cost of the property 

The purchase price of the property is just one of the costs you will need to consider. 

You will also need to factor in the cost of mortgage payments, property taxes, insurance, and maintenance.

Once you have considered all of these factors, you will be able to determine whether or not you can afford an investment property. If you decide to invest in a rental property, it is essential to research and choose a property that is a good fit for your financial goals and risk tolerance.

Here are some additional questions you may want to consider when determining the affordability of an investment property:

• What is my monthly cash flow from the rental property?
• How much equity will I build in the property over time?
• What are the tax implications of owning an investment property?
• What is my risk tolerance for this investment?
• Answering these questions will help you make an informed decision about whether or not an investment property is right for you.

Property Investment Costs

If you are considering becoming a property investor or even just investing in a new property, there are a number of costs you should be aware of. These costs include:

Deposit 

You will typically need a deposit of 20% of the property’s value. However, you may be able to get a loan with a lower deposit if you shop around.

Home loan 

In addition to the principal you borrow, there are other fees associated with your home loan, such as legal fees, valuation fees, and monthly or yearly fees. You may also have to pay lenders mortgage insurance (LMI) if your deposit is less than 20%.

Purchase costs 

There are other costs associated with the purchase of a property, such as stamp duty, legal fees, and title searches. You may also need to pay for a building and pest inspection.

Buyer’s agent fees 

If you use a buyer’s agent to help you find a property, you will need to pay their fees. These fees are typically either a fixed fee or a percentage of the purchase price.

Insurance 

You will need to have insurance for your rental property, which will protect you in the event of a fire, storm, theft, or other damage. You may also want to consider landlord insurance, which will protect you in the event that a tenant fails to pay their rent or damages your property.

Property management fees 

If you do not want to manage your rental property yourself, you can hire a property manager. Property managers typically charge between 7 and 10% of your monthly rent.

Repairs and maintenance 

Your rental property will need to be repaired and maintained from time to time. This could include repairs to leaky faucets, broken appliances, or other damage. You may also need to pay for landscaping or other maintenance tasks.

Strata fees

If you purchase a townhouse or unit, you will be responsible for paying strata fees. These fees are used to cover the cost of building insurance and maintenance of common areas.

Council rates

You will also need to pay council rates for your rental property. These rates are set by the local council and are based on the value of your property.

Other expenses: There may be other expenses associated with owning a rental property, such as:

Accountant’s fees to help with tax return preparation

• Pest control costs
• Tenant turnover costs
• Renovation costs
• Travel and lodging costs if you need to travel to check on your property
• Land tax
• Utilities and services
• Agent, attorney, and advertising fees

The costs of owning a rental property can vary depending on the property and the location. However, it is important to be aware of these costs before you invest in a rental property. By understanding the costs involved, you can make an informed decision about whether or not a rental property is right for you.

First Thing’s First – Establish Your Property Investment Strategy

Property investment is a complex and personal decision. There is no singular approach, as your goals, risk appetite, and financial circumstances will all play a role in determining the right strategy for you.

Consider Your Goals

Before you invest in property, it is important to define your goals. Are you looking for long-term capital growth, or do you want to generate regular income? Your goals will help you determine the type of property you invest in, the location, and the amount you are willing to spend.

If you are looking for long-term capital growth, you will want to invest in properties that are likely to appreciate in value over time. This could include properties in areas with strong economic growth or properties that are close to amenities and transportation.

If you are looking for regular income, you will want to invest in properties that can be rented out. This could include single-family homes, apartments, or even commercial properties.

It is also important to be realistic about your goals. If you are not willing to take on any risk, you may not be able to achieve significant capital growth. Similarly, if you are not willing to put in the work to manage rental properties, you may not be able to generate a significant amount of income from your investments.”

Assess Your Risk Appetite

How comfortable are you with risk? Are you willing to take on more risk in the hope of higher returns? Or do you prefer to play it safe? Your risk appetite will help you decide which property types and locations are right for you.

Understand Your Financial Circumstances

How much money do you have to invest? What are your monthly outgoings? Your financial circumstances will determine how much you can afford to spend on a property and how much you can afford to lose.

Once you have considered these factors, you can start to develop a property investment strategy. 

An ideal strategy should include the following:

• The type of property you want to invest in
• The location of the property
• The amount you are willing to spend
• Your timeframe for investment
• Your goals for the investment

Having a clear strategy will help you make informed decisions about your property investments. It will also help you avoid making purchases that are not right for you and your goals.

Here are some additional tips for developing a property investment strategy:

Do your research. 

Learn as much as you can about the property market, different property types, and different locations.

Get professional advice. 

Speak to a financial advisor or property investment expert to get their insights and advice.

Be patient. 

Property investment is a long-term game. Don’t expect to get rich quick.

With careful planning and execution, property investment can be a rewarding and profitable experience.

Structuring Your Finances for Property Investment

Once you have a clear investment plan in place, the next crucial step is to organise your finances effectively. Properly structuring your property loans can significantly impact your ability to make further purchases and access your property’s equity in the future.

It is essential to recognize that not all lenders have a deep understanding of property investment. 

Banks, in particular, often structure property loans to mitigate their own risks rather than prioritising your interests as the borrower. To navigate this, seeking guidance from a property-savvy broker is vital. They can provide expert advice on the most suitable structures that align with your needs, while also minimising investment risks and allowing flexibility for portfolio growth.

Several factors come into play when structuring your finances for property investment:

Investment Goals

Determine whether you seek long-term capital growth or regular income from your investments.

Risk Tolerance

Assess how much risk you are comfortable taking on with your investment strategy.

Financial Circumstances 

Evaluate the funds you have available for investment.

Property Type 

Decide on the type of property you want to invest in, such as single-family homes, apartments, or commercial properties.

Location 

Consider the rental demand and capital growth prospects in the area where you plan to invest.

Once you have carefully considered these factors, you can proceed to develop a sound financial structure for your property investment. 

This structure should encompass the following aspects:

• Loan Types: Determine whether you require conventional loans, interest-only loans, or specific investment loans.
• Loan Amounts: Decide how much you need to borrow for each property.
• Interest Rates: Be aware of the interest rates associated with each loan.
• Repayment Terms: Establish the repayment periods for each loan.

Professional advice from a property-savvy broker is crucial when structuring your finances for property investment. A knowledgeable broker will guide you through the various loan options available and help you choose the most suitable structure based on your unique requirements.

Here are some additional tips to consider while structuring your finances for property investment:

1. Seek guidance from a property-savvy broker to make informed decisions.
2. Understand the different types of loans available to you.
3. Select the loan structure that aligns best with your needs and risk tolerance.
4. Carefully evaluate the repayment terms for each loan.
5. Build a financial buffer to cover unexpected expenses that may arise.

By adhering to these tips and working with professionals, you can significantly increase your chances of success when investing in a property. 

A well-structured financial plan will set you on the right path toward achieving your property investment goals.

Proactively Manage Your Investment Property

Taking a proactive approach to managing your investment property is crucial to maximizing its potential, both in terms of capital growth and rental income. The first step after purchasing the property is to ensure it is managed effectively, and a skilled property manager can be of great assistance in achieving this.

A competent property manager will provide valuable advice on various strategies to enhance your property’s performance. This may include suggesting cost-effective improvements to increase market rent, implementing special clauses and procedures to safeguard your rental cash flow, and collaborating with your mortgage broker to maintain a healthy financial position.

When selecting a property manager, consider asking the following key questions:

 

How long have you been in the property management business?

What is your experience in managing investment properties?

What are your fees and the scope of your services?

Do you offer any guarantees or assurances regarding your services?

Asking these questions will help you find a property manager who aligns with your investment goals and can support you effectively.

Additional tips for proactive property management include:

• Conduct a thorough research to choose an experienced and knowledgeable property manager.
• Set clear expectations with your property manager and maintain regular communication.
• Take an active role in managing your property and explore ways to maximize its performance.
• Regularly monitor your property’s performance and make necessary adjustments as required.

By using these simple tips, you can significantly increase the likelihood of success for your investment property. Proactive management will enable you to make the most of your investment, leading to favorable returns and long-term success.

Ready to Get Started With the Big Australian Dream?

When you are in the process of buying or selling a home or investment property, asking the right questions to your property investor advisor is crucial. This not only provides insights into the agent’s approach and expertise but also offers valuable information about the property and the local market.

At Equimax, our dedicated team is here to assist you. Our experienced property investment advisors bring a wealth of knowledge to the table, ensuring a smooth buying process. As Australia’s top-rated property investment Advisors , our expertise can be invaluable in navigating the property market.

If you are considering starting your investment property journey and need expert guidance, our experienced property consultants can work closely with you to create a tailored strategy that suits your unique situation and goals.

Are you ready to get started on your property investment journey? 

Reach out to us, and we will be delighted to help you every step of the way.