Buying an investment property is a wealth creation strategy that many Australians use. Houses, units and other residential and commercial property is often easier to manage and understand when compared to other investments, such as shares, which often come with far greater risk.
Many people also like the fact that property is made of bricks and mortar, and is an investment that they can see and touch. But, before you dive into property investment it’s important that you ensure that you can afford to invest, that you are looking for a long-term investment and that you buy with your head and not your heart. This will then allow you to maximise the amount each property produces for you. Let’s look at these aspects in greater detail.
What You Need to Consider Before Buying an Investment Property
Buying an investment property is much like buying and running a business. You’ll need capital to fund your venture and to cover costs, such as stamp duty. You’ll also need to have enough capital to cover unexpected costs, such as mortgage repayments and other property expenses. Sure the rent you’ll collect will cover most of these expenses, but on occasions your tenant won’t pay on time or you’ll find the hot water service no longer works and needs to be replaced.
Investment Property Buying Hints
- Pay off your home mortgage before you buy an investment property – If you’re looking to buy an investment property, then experts suggest that you have no home mortgage to pay. This then gives you more capital to fund your investment property.
- Save a larger deposit – Rather than saving the minimum deposit for an investment property, aim to save more. The greater your deposit, the less you have to borrow. This reduces your costs and financial stress. This also allows you to have more equity in your investment property, which can be to secure additional investment property at a later date.
- Always have a financial buffer – Work out the costs of your investment property if it was untenanted for 12 to 18-months. Put this money into a high investment fund, or a similar account, so you can afford to cover your property’s costs should it go untenanted for some time. This will reduce your financial stress and allow you to effectively manage your investment property.
- Location, location, location – Do your homework and research the market. Think like a tenant, not a home buyer. Look for amenities, services and public transport. Think affordability, aesthetically pleasing and easy to maintain.
- Think long-term – Investment property is a long-term wealth creation strategy. If you’re looking to make some quick bucks, then you may need to consider another investment strategy. To make a profit on an investment property then you should be looking to hold on to the property for at least 10-years.
- Be business orientated – When you go in search of an investment property think about rental return, tenant appeal and just how much you’ll need to spend on the property to maintain it. Ideally, you want a property that you can ask high rent for, which will have a high occupancy rate, and won’t cost you a great deal to maintain.
Are you looking for an investment property loan? Then contact eChoice to find the right home loan for YOU.
Written by eChoice