Buying an investment property

Thinking of buying and investment property? Here are some tips and background information to help get you started.

Why invest in property?

  • Potential capital growth

    While there are peaks and troughs in the Australian property cycle, property is an asset class that has increased in value over time. Based on the past performance of the Australian property market over the long term, you can generally expect the value of your property to grow and provide a strong return on your initial investment.

  • Ongoing supplementary income

    Talk to a mortgage broker or credit professional who can give you a second opinion on your current situation, as well as a professional’s guide to what the market is currently doing. Their advice should help you answer the questions above and give you an idea of the most suitable loan for you. They’ll also look at your current and projected financial position to give you an idea of what you may be able to borrow.

  • Add further value

    You can add value to an investment property by renovating. Changes you make can add further value to your property meaning your potential return at sale, and the amount you can charge in rent, increases too.

  • Tax benefits

    When you invest in property your investment may provide you with benefits at tax time if you have the right investment structures in place. Through negative gearing you may be able to reduce the amount of tax you pay on your personal income. By taking a long term view and keeping your property for more than 12 months, you may be eligible to pay a reduced amount of capital gain tax on any profits from the sale of the property.

  • Start the application process

    Ask your mortgage broker or credit professional to get the application process started for you, so you’ll be ready to buy once you find your ideal property.

  • Start looking

    for your new property!

Things to consider

  • Do your research

    Conduct research on existing rental properties in the area you’re interested in. By looking at similar properties currently being advertised for lease you’ll get an idea of what you can expect to receive in rental income. Also look into property sales over the past 12 – 18 months to determine the value growth of the area. Then talk to your mortgage broker or credit professional about whether they think current growth levels are likely to continue.

  • Maintenance

    An investment property will require regular maintenance and upkeep to ensure it’s in the best possible condition to maximise the rent you can charge. When thinking about potential renovations to the property consider what effect they will have on the overall value of the property, compared to the cost of improvements. It’s best not to spend your money on renovations that don’t increase the value of your property.

  • Plan long term

    Investing in property is rarely a short term investment. The instances where property values provide large returns in short time frames are few and far between. It may be best to plan to own your property for a number of years before you seek to sell. Also keep in mind that turning the asset back into cash via a sale is a process that can take some time, and if rushed can result in a lower sale price.

  • Protect yourself

    In a perfect world your investment property would be leased by low maintenance tenants who always pay on time, rarely contact you with requests and continuously renew their lease.

    Unfortunately getting all three traits in one tenant is unlikely. So it’s best to be in a position where you are protected in less than ideal circumstances, such as costly emergency repairs to your property or a tenant breaking their lease early, resulting in your property being untenanted. Two popular ways to protect yourself are to keep a buffer of funds on hand for use when necessary (these could sit in an offset account to save you interest) and landlords insurance.

Note: This does not constitute taxation advice and may not be relevant to everyone.  You should obtain independent expert advice on your individual circumstances.

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