Can I afford an investment property?

Investing in Australian real estate can be a great opportunity for those who want to diversify their portfolio or dip their toes into real estate, but only if they can afford it. As with any investment, you need to make sure you have enough funds for it to be successful. 

Here are a few things to keep in mind before you dive into investment properties. 

Understand the full cost of owning an investment property 

It’s always a good idea to have a firm grasp of the expenses an investment property could incur. Investing in properties requires more hands-on management compared to other investment modes such as shares and bonds. You must understand all possible expenses in addition to the purchase price of buying a property. 

Flipping an investment property 

If you’re flipping a house, you’re expected to do some changes, be it simple cosmetic updates or more substantial, structural upgrades. Renovation costs vary depending on how complicated the construction will be. It’s best to have a clear plan on what you want to add to the property to avoid going over budget. 

When it comes to selling a home, there are several costs to consider, including real estate agent fees, marketing expenses, conveyancing fees, and capital gains tax, among others. If you don’t include these in your initial cost computation, they could take off a significant chunk of your profits. 

Renting out an investment property 

With rental properties, always think about all the ongoing costs. You will need to take out insurance to cover against common risks such as property damage and you may wish to add options such as renter default and damage.

As the property owner, you’re responsible for the management, maintenance, repairs, and general upkeep of the property. If you’re going to outsource the management of your rental property, you have to pay for property management fees. You’ll also have to account for land tax, council rates and strata fees (if applicable). 

How to budget for an investment property purchase 

You need to know your limits before buying an investment property. Figuring out a budget that works for you is crucial for a successful investment endeavour.  

Consider your finances 

This includes your current income, expenses, existing debts, and other factors that could affect your finances. When figuring out if you can afford an investment property, you need to see if there’s room in your current finances for another serious expense. It’s best to get the advice of an accountant or financial expert to see what your next course of action should be. 

Look at your other property’s equity 

You could leverage your other property's equity to help you buy an investment property. If you own a home, for example, you can try unlocking the equity on it and use that as a deposit to secure an investment loan. However, property owners are generally advised against using up all their equity for one purchase.  

Do market research 

Market research is essential when going into real estate. You’ll see what kind of property is in demand in certain areas and plan for them accordingly. Each suburb has its own local market trends and demographics that can impact the success of your investment property.  

Tips to save up for an investment property 

Everyone has a different financial situation. Some may be more suited investing now as they’re in a more comfortable financial situation. But even if you’re not perfectly suited for an investment right now, there are ways to prepare so you could be in a better position to buy investment properties in the future. 

Here are some tips to help you save for a deposit on your investment property: 

• Reevaluate your budget. Look at your finances carefully to see if there are ways you can maximise your savings. You need to know where you’re at financially so you can set a clear path forward. 
• Cut costs when you can. If you’re able to cut out some extra spending on non-essentials and focus on minimising spending, these could help you save a significant amount of funds for your investment property.  
• Clear your debts. Taking care of your existing debts, like credit card debt, car loans, and personal loans, can make it easier for you to save in the future.  
• Prioritise savings. Automate your savings so that you’re not tempted to spend it elsewhere. As soon as your pay hits your account, you can have a set amount transferred automatically to a separate savings account. 

One of the best ways to save costs when buying an investment property is by getting a home loan with low rates and cost-saving features. If you want to find great home loans for investors, get in touch with the friendly lending specialists at loans.com.au. 

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