Checklist for buying an investment property

Investing in the right property can be a good strategy to grow your wealth. But keep in mind that property investment does not mean instant riches.  

It’s important to do your own research before you invest in a property. Research the market, assess your financial situation, and compare properties in the area to get an idea of how much your rental yield is likely to be.  

Here are some things to consider to help you maximise your investment returns. 

Find out how much you can borrow 

First and foremost, you need to set a budget for your investment property endeavour, and you do that by knowing how much you can borrow. Setting a budget limit can help inform your property search and narrow your options. 

Your borrowing power will depend on the strength of your loan application and your trustworthiness as a borrower. If you own another property, you might be able to use the equity from that property as a deposit for your investment property. 

To calculate the equity in your property at any time, simply use the following formula: Property’s market value – loan amount = equity 

Consider an investment home loan pre-approval 

Get your financing in order as soon as possible. It’s never too early to get a pre-approved investment home loan. Getting pre-approved means you have a better idea of how much you can borrow and can help make the loan process smoother. 

If you’re applying for a loan with the same lender that provided your pre-approval, it could streamline your formal investment home loan application. This could save you a lot of time and hassle as the lender already has most of the needed information. With a quicker loan application, you would likely have less to worry about missing out on potential properties due to a lack of financing. 

Understand risk management 

You can’t go into property investment without proper research. Property investment is a long-term investment strategy, so you should be committed to that property over a longer period to build up equity. 

Unlike other forms of investment, like shares or managed funds, you can’t just sell part of your investment property if you need money quickly. When investing in properties, make sure you know the ins and outs of real estate investments and understand the risks involved to make an informed decision. 

Decide on a cash flow strategy 

Before you buy a property, you need to understand your cash flow strategy. A positive cash flow investment means that it earns more than it costs to own. It means that the generated income of the property should be larger than the mortgage repayments and other outgoings.  

A negative cash flow strategy means outgoings will exceed rental earnings. In some circumstances, you may be able to offset the losses against your taxes and wait for growth in the value of the property to generate positive long-term returns. 

Research locations and property types 

Location plays a huge role in your investment property’s success. Look for a desirable area that has strong potential growth in the future that is likely to increase in demand. You should also consider the proximity to public transportation, schools, shops, markets, health care and other amenities, which will also have an impact on rents. 

For more information about a certain location, you can get a free suburb report from loans.com.au. These reports contain relevant information such as comparative market analysis, median market prices, market data, suburb demographics, and much more. You can learn all about specific suburbs with just a glance. 

Choose the right type of property 

The type of property you purchase will determine the amount of rent you will receive and how much you can get from its sale. The property you choose should be in line with your investment strategy and goals.  

Are you buying a house, apartment or holiday rental? Understand that every property type comes with its unique set of responsibilities. They also have different ongoing costs and maintenance needs. Each option has its own pros and cons. Weigh each benefit and drawback carefully to ensure you make the best choice for your investment. 

Know your target tenants

The type of property you buy should appeal to your target renters. If you are buying a property near schools and parks, couples with children are more likely to be your potential tenants. But if you are investing in a property that’s near a university, students from that university are more likely to be your tenants.  

Look for the right property manager 

Property managers will manage your property by showing the property to potential tenants, collecting rent, and organising repairs. You can also manage your own property to avoid management costs, but it can be time-consuming as you will have to do everything. 

Select the right mortgage 

For most investors, mortgage repayments will be their largest expense, so it’s imperative to get the right loan. A popular choice among property investors is interest-only home loans because of the potential tax benefits and the size of the repayment is smaller, although it is important to remember that the principal will still ultimately need to be repaid. 

To learn more about your investment property finance options, get in touch with loans.com.au! Check out our range of investment home loans or speak with our friendly lending specialists by calling 13 10 90. If you want to get a head start on your investment home loan application, you can apply online today! 

Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek professional advice tailored to your circumstances before making any financial decisions.

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