Whether yours is going to be a rental, a home for the future, or you’re going to renovate and aim to sell it quickly, it’s important to know clearly why you’re buying an investment property. This will help you to set clear goals and secure your financial future.
Understanding your financial situation
Before you can buy an investment property, you should understand your financial position. If you’re going to borrow money from a lender to purchase it, you’re probably wondering, how much can I borrow for an investment property? Our borrowing power calculator can help with this.
If you’ve already purchased a home, you could use equity from it to purchase your investment property. This means your equity acts as the deposit, so you don’t have to pay physical cash. What is equity in property? Your equity is the difference between your home’s value and how much you currently owe on it. When it comes to using this equity to buy another property, usually you can only borrow up to 80% of the value of your home.
If you already have a home loan, and other debts, make sure you can afford to pay for another property loan. You shouldn’t rely on the rental income to cover all the costs. This is because the market changes, and there may be times when your property is empty. Your repayments can change too with interest rates, and it’s worth noting investment property loans generally have higher interest rates than home loans.
Evaluate your life stage as well. Are you about to start a family, send your kids to an expensive school, pay for a big holiday or an extravagant wedding? Make sure you’re in a position where you can take on additional debt. Remember the importance of speaking to an expert such as your accountant and lawyer before making a final decision.
Just like when you’re buying a home, buying an investment property still comes with the additional costs such as stamp duty, conveyancing fees, building insurance and building and pest inspections.
There are also ongoing costs that you’ll need to continue to pay. If you have a rental property, it’s not the tenant’s responsibility to pay for things like repairs or maintenance, council and water rates, and any body corporate fees. Further, if you’re not managing the property yourself, you’ll need to pay for a property manager too. Remember to protect your investment property with landlord insurance.
If you sell your property, along with selling costs, you may also have to pay capital gains tax if the property has increased in value. More information about tax for investment properties can be found on the Australian Taxation Office (ATO) website.
At People’s Choice we have a range of investment loans to suit your needs. Use our comparison tool to find which one is right for you. If you’re ready to get started, you can speak to one of our Home Loan Advisers or make an investment loan enquiry online today.
Choosing a type of investment propertyAre you looking at buying a house, a unit, an apartment or a holiday home? The type of property should align with what you’re wanting to use it for. To have an appealing rental, look for features like parking, a second bathroom or a home office space. Regardless of the property type, factor in potential maintenance costs as it will be you who needs to cover these as the property owner.
When deciding where to buy, do the same research you would when choosing a suburb to live in – look for any upcoming plans for the suburb, and consider buying near shops, public transport and schools. Read more about how to profile a suburb for investment here.