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7 things to consider when buying an investment property

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Buying an investment property continues to be one of Australia’s favourite ways to invest. Real estate has produced many of the world’s wealthiest people and you might be thinking to be one. Even if you aren’t though, it’s a great way to supplement your main income. An investment property should be about increasing your wealth and securing your financial future.

So here’s a checklist for you to start looking for a profitable investment!

1. Choose the right property at the right price

This depends on the amount of money you have in the bank and how much you’re willing to invest. Diversification can be a valid option – buying several cheaper properties rather than one expensive one to reduce your risk. This way you aren’t putting all of your eggs in one basket.

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Your choice of how many properties you are going to buy will depend on your investment strategy and how active you will be as an investor. Just bear in mind your financial freedom in the long term. Perhaps consider buying the properties at regular intervals. 

Finding the right property can be hard and confusing with all the options available. Lenders and mortgage insurers have valuable data on different locations and property developments. This information can help you to choose the right place to invest your money. 

2. Count your cash 

Investing in property is a proven path to long-term wealth. But, it’s important to keep in mind that it is a long-term investment. You’ll want to make sure that you can afford to maintain your mortgage repayments over the long term. 

Liquidity risk (the risk of not having sufficient funds to meet short-term costs) becomes high in an investment like this. So, it’s worth paying off all your short term debts before you take out a second mortgage. Failing to do this could lead to having to sell your investment property earlier than anticipated in order to meet some other unexpected debt.

3. Understand the market and the dynamics of your investment 

Next, this is the part where any connections you have will come in handy. Speaking with as many people and gathering information is a critical part of investing. Agents are a good place to start and by giving them different options of what you really want. This is because they can gather the information needed for you to decide on the investment you’ll be involved in.

The internet is a rich place for providing insights and it’s free as well. As so, absorb as much information from it as you can. 

4. Choose the right mortgage for the property

This is possibly the most important part of your investment journey which will determine your payments and lenders. It’s better to consult your bank first and see what they can offer. Some banks offer discounted rates for their clients. 

Another option is to seek a mortgage broker to get everything settled for you. They have experience in evaluating your circumstances and take on the best rate for you and saves you loads of money. They’re also free as their commissions are paid by the lender.

Whether you choose a fixed-rate or variable-rate loan will depend on your circumstances, but consider both options carefully before you decide. Over time variable rates have proven to be cheaper, but selecting a fixed-rate loan at the right time can really pay off.

To read more about the different interest rate types, read our guide here.

5. Evaluate your property and its conditions

It’s advisable to engage a professional building inspector before you purchase to inspect the property to avoid any extra maintenance costs that may have been invested in a better-suited property. 

It is also wise to use a qualified tradesperson who is licensed with adequate insurance and protects you from any poor labour execution.

6. Choose the right property manager 

These individuals are usually a licenced real estate agent – their job is to keep things in order for you and your tenant. They have experience in the way the property is managed and how you can get the highest value out of your investment. 

The property manager should be able to give you advice on property law, your rights and responsibilities as a landlord as well as those of your tenants. 

7. Polish your property 

Making your property attractive to renters gives you the opportunity to get more tenants and therefore getting a higher return on investment. Keep the kitchen and bathroom in good condition: not only that will bring more attention to your property, but it will also attract better quality tenants. 

This will also bring up the value of your property in the market and make your investment count. 

Ticking off your checklist will make things more organized and protects you from any unwanted chaos. Property investment is a huge step and requires a huge input, so make sure you plan it out beforehand. 

Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstance and requirements.

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