4 Steps to Help You Buy an Investment Property

Investing in property is something a lot of Sunshine Coast residents think about at one time or another. If you are ready to take the plunge, we have the four steps you need to take to buy an investment property. Please read on to learn how to get your foot in the real estate door and start investing on the Sunshine Coast or another location.

1. Decide your goals and create your plan

If you have never invested in property before, your first step is to take the time to create some goals and create a solid plan to aim for the best results.

Decide how your investment property will be used in the long term

Knowing how you will use your investment property will help you reach your goals from the start. Will this be used as leverage for more investment properties in your real estate portfolio, will it be a single long-term investment property or would you like to move into it as your own home one day?

Understand your finances

Just like getting a mortgage for your own home, your financial situation will determine your capacity for an investment property – both how much you can borrow or how much equity you can access as well as your ability to make repayments.

Research the real estate in your investment area

When creating your plan, understanding real estate trends in your target investment area is crucial to fitting all the puzzle pieces together. You can research online as well as speak to local real estate agents. As well as the property prices matching your finances, you will want to understand what tenants are looking for in rental properties to ensure you have an attractive option in the area.

Research the rental market

Understanding the rental market in terms of what rent tenants will pay will also put you in the best position for a profitable investment.

Calculate your potential return on investment

Knowing your potential rental yield, or return on investment (ROI) will help you understand whether investing is right for you, or what you need to do to ensure you are in the right position to take the plunge. You can calculate your rental yield by knowing your overall costs of the investment property and the income you will receive from renting out the property. Be mindful of ongoing costs like maintenance and insurance that will need to be weighed up against your rental income. (See step 3 below for a more comprehensive guide for cost calculations)

2. Your investment property deposit

With your research done and plan created, now you need to work out how much deposit you need to make your investment dreams come true. There are a number of options to decide what is right for you.

A cash deposit

Typically, a 20% deposit is favoured by most lenders, however there are many options for mortgage deposits these days. An experienced mortgage broker can take you through your options in regards to your personal financial situation.

Use your equity from your existing home

If you have owned your home for a number or years, or property prices in your area have increased significantly since you bought, you may have enough equity built up on your existing mortgage to use instead of a cash deposit.

Guarantor loan

If neither of these suit you but you have someone close to you like a relative that has sufficient home equity in their property, you can explore whether a guarantor loan is an option available to you. A mortgage broker can help you and your relative understand everything you need to know about guarantor loans before you decide it’s right for you.

Once you know how much of a deposit you have available to use, you can work with an experienced mortgage broker to understand what type of investment loan and interest rates are suitable. Be mindful that investment properties sometimes attract higher interest rates than owner occupied properties.

3. Calculate your investment property costs

When investing in property, there are a number of upfront and ongoing costs that you do not encounter with an owner occupier property.

Upfront costs

As well as loan upfront costs like stamp duty, application fees and legal fees, an investment property could attract the following upfront costs:

  • pest and building inspections
  • a strata search/strata report for units, apartments or townhouses

Ongoing costs

Although many of the following costs can be claimed on tax, it is best practice to receive tax/accountancy advice to ensure you are claiming correctly. The most common ongoing expenses for an investment property can include:

  • Landlord insurance
  • Council and water rates
  • Body corporate fees
  • Letting and re-letting costs – including advertising costs
  • Management fees paid to real estate agents
  • Repairs and maintenance

4. Your home loan application

You have done your research, you have your deposit sorted and you know the financials check out. Now, the last step to getting your first investment property is applying for your home loan! If you haven’t already, speak to a knowledgeable mortgage broker about what types of investments loans are available and what current interest rates are doing.

SCF Solutions is highly experienced in investment home loans so talk to us today about your investment property goals and let us help you succeed.

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