Buying an investment property can be a powerful wealth-building strategy, but only if you go in with your eyes wide open.
While property can generate long-term capital growth and rental income, it also comes with a range of financial responsibilities.
Here’s how to determine whether you’re financially ready to invest.
Understand your borrowing capacity
The first step is knowing how much you can borrow. Your borrowing capacity depends on your income, expenses, existing debts, and credit history. One of our local lending specialists can assess your situation and give you a realistic picture of what lenders could approve. In addition to reviewing your current income and liabilities, we can help you consider whether you have options to use a cash deposit or equity from an existing property.
On your existing property, we also offer a free property report which helps track your exact equity position.
Factor in upfront and ongoing costs
Investing in property isn’t just about mortgage repayments. There are significant upfront and ongoing costs to consider. These may include stamp duty, legal and conveyancing fees, loan setup fees, pest and building inspections, and possibly lenders mortgage insurance (LMI) if your deposit is under 20%.
Once you own the property, regular costs can include council rates, water charges, strata or body corporate fees, property management fees, landlord insurance, maintenance, repairs, and land tax in some states. If your property is vacant, you’ll still need to cover these costs without rental income, so creating a buffer to cover at least three months of expenses is highly recommended.
Budget realistically for repairs and renovations
It’s easy to underestimate the cost of repairs or upgrades. Whether it’s cosmetic work to boost rental appeal or essential repairs like plumbing or roofing, costs can quickly add up. Always overestimate renovation expenses and build a contingency fund. Renovations can also add to your borrowing power if managed correctly.
Understand rental income expectations
When lenders assess your loan application, they factor in projected rental income, but often only at 70 to 80 per cent of the estimated figure to account for vacancy and expenses.
Our lending specialists have access to market wide rental data and can provide you with an accurate report displaying upper and lower rental income estimates. Going even further, we can have a local property manage provide you with an accurate estimate based on current tenant demand, tailored to the property you’re considering.
Check recent rental listings for similar properties in the area to get a realistic sense of income. Consider the suburb’s vacancy rate and how seasonal factors might impact demand. Some suburbs have high rental turnover or drop in popularity during certain times of the year.
Plan early
Working with one of our Lending Specialists early in the process gives you clarity and confidence. The key is planning well, understanding your cash flow, and building a buffer for the unknowns.
We’ll compare options for you across a wide panel of lenders, ensuring you select the right investment loan for you.
If prudent, we’ll also help you obtain a loan pre-approval. This provides you with confident and may increase your negotiating power.
Want to take the first steps toward property investing?
Contact us today to speak with one of our lending specialists—we’re here to help in any way you need.
Thinking of investing in property?
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.