With the property market in a growth phase, rental vacancies at all-time lows and staycations replacing overseas travel, many people are considering this as an opportune time to enter the investment property market. Whilst it’s a decision that needs to be based on many different factors, we’ve come up with a list of questions to ask yourself before you sign on the dotted line.

Are you buying with your heart or your head?

An investment property is just that, an investment, so it makes sense to make a decision based on maths. You shouldn’t get the same feeling from buying an investment property that you did when you bought your house. If you’re feeling a little lacklustre about your investment property purchase, it could be because you are making a decision based on return on investment, which is a good thing!

If you plan on living in your investment property in the short term and renting it out in the future or keeping it for your retirement home, your decision should still make sound financial sense. Your investment property should be a good compromise between your needs, any tax benefits, and return potential.

As a general rule, when looking at properties, it’s important to ask yourself if you are drawn to features that appeal to your taste, or if you like it because of its potential for rental return, capital gain or because it’s in an area with growth potential. It’s wise to set yourself a limit at which point an investment is no longer profitable, such as a rate of return, to avoid being swayed by those upmarket new kitchen appliances or backyard that would suit your family.

What are your revenue stream options?

With many different ways to make money on investment property, it’s wise to consider all options and continually revaluate these as market conditions change. Some investment properties might be best suited to being rented out to long-term tenants. Others may have the potential to be renovated and sold or it may make sense if your property is in a desirable area, to offer it as an Airbnb.

Taking advantage of the current surge in demand for staycations could offer a much higher rate of return than a long-term tenant, albeit with less stability of income with travel restrictions in a constant state of flux. If you’re considering this option, be sure to do your research on what accommodation is on offer in the area, vacancy rates and the monetary and time costs of cleaning and managing the property. Also, pay attention to your local council’s holiday letting policies that regulate short-term accommodation. For example, the Byron Shire Council in NSW regulates a maximum number of days per year for holiday lettings as well as requiring a development application (DA) in order to let your home.

Will you manage it yourself or employ the services of a property manager?

There are pros and cons to each approach, so what works best for you may not necessarily suit someone else. Property management fees are typically 7–10% of rental income and will save you the hassle of dealing with tenants yourself (you’ll be spared from hearing about that water leak that keeps springing up) and managing repair works.

Engaging a reputable property manager brand can provide many benefits being:

  • All tenant communications and issues
  • Management of tradespeople
  • Rental income and trust account funds
  • Legal matters
  • Specific events eg. interim regulations passed during COVID-19 pandemic

Property investment should be financially rewarding – but hassle free. That’s why we would always recommend use of a reputable property manager.

Managing an Airbnb can be a time-consuming task of managing bookings and key drop-offs, answering questions and organising cleaners. Thankfully you can enlist the help of one of many companies that have sprung out of the Airbnb economy to manage your listing, taking out the day-to-day legwork for investors.

Is it in the right area?

The old adage is true—location, location, location! Make a well-informed decision by becoming an expert on the area or areas you are looking to invest in. Get to know several different local agents and find out their opinions on the potential of the area as an investment opportunity, now and into the future.

Our local lending specialists can provide you with free property and suburb reports to help with your research.

A good indicator of up-and-coming areas is what infrastructure currently exists and what is planned. New schools, hospitals, retail or sporting facilities planned for an area are a sign growth is predicted in the region. Look up approved development applications to keep abreast of any new rental options that have the potential to flood the market and compete with yours.  Other factors to consider are crime rates, access to public transport and the job market to assess future rental demand.

Will you renovate or rent as is?

Finding a bargain can be tempting, but how much will you need to factor in to get the property into a condition that will attract a good rental income or a profit if you intend to flip it?

It’s important to always get a building inspection to identify any underlying issues and get quotes from contractors for the renovations you intend to do prior to purchase to minimise the risk of surprise costs once you’ve purchased the property (think structural issues, asbestos removal or re-roofing). If you’re considering a renovation project, check out our article before diving into a renovation for some sound renovation advice.

What are my financing choices?

Whether you’re looking to purchase an investment property or refinance one, knowing what’s important to you in an investment loan is a great place to start.

Structure. Variable vs Fixed. Off-set. Interest Rate. Features. These are all areas to consider. However it all comes down to your personal circumstances and financial goals.

A lending specialist with strong credit knowledge is always a great resource. Not only can they help you access the right product, they help get your loan approved, check the lender contract, and offer after settlement service.

Costs also need to be factored into your budget. Mainly, stamp duty and legal fees. You may also be eligible for concessions. It’s important you complete a thorough budget with someone who understands the full process.

Negative gearing your investment is a term often heard when discussing investment properties. Simply put, when the rent paid is less than the ongoing expenses of the property and you’ve borrowed money to invest, you are essentially running at a loss which can be used as a tax break. Check out our article for more information on positive and negative gearing.

How long am I in it for?

At some point, you are going to want to cash in on your investment property and the length of time you intend to keep it can determine which property is best for you. Investment properties are a long-term investment option, however, your criteria for the right property might change if you decide you want to keep it for ten years or twenty.

If the area you are investing in is an up-and-coming area, you may want to adopt a longer-term investment strategy to take advantage of capital growth. Inner-city investments that attract an already high rental return and lower vacancy rates might consequently be held for shorter periods of time.

In the long term, as you reap the rewards of your investment property, you’ll thank yourself for taking a considered approach to your decision.

How can we help?

Our lending specialists offer face to face, phone, and web-based chats to answer your questions and help you assess your budget and equity. We also offer free property suburb reports to help with your research. From there we help you reach your investment property goals!

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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. You should always undertake your own independent property research, and obtain your own financial advice in relation to property investing.