Tips For Buying An Investment Property

Investing in property can be a rewarding way to grow your wealth, but success requires careful planning and informed decisions.

Some of the most important tips include setting a budget you can afford, leveraging equity from existing properties, and carefully researching the property market to find the right location. It’s also essential to be mindful of tax implications, such as taking advantage of negative gearing and understanding capital gains tax.

By following the 10 tips, you can boost your chances of achieving long-term returns from your property investment.

• Set a budget you can afford
• Invest with less from your own pocket
• Shop around for the right loan
• Research the property market
• Be prepared to negotiate
• Be careful with property valuation
• Leverage existing equity
• Assess your investment strategy
• Be mindful of tax implications
• Leverage your SMSF

1. Set A Budget You Can Afford

Knowing how much you can afford before you start investing in property is crucial. It would be best if you prioritised any other financial goals you might have before jumping in for an investment loan, as you may be entering a loan term of 25 or 30 years, depending on the size of the deposit you’ve saved.

You have to budget for the following costs when applying for an investment loan:

• 20% deposit of the purchase price (usually)
• Lenders Mortgage Insurance (if applicable)
• Loan application fee
• Stamp duty, mortgage registration and transfer fees
• Legal and conveyancing costs
• Building, pest and strata inspection fees
• Loan repayments and interest charges
• Repairs and maintenance costs
• Property management fees

3. Shop Around For The Right Loan

If you want to profit from your investment property, it’s essential to shop around for the loan that best suits your strategy. Each loan is different, with varying terms and conditions. So don’t just look at the interest rates.

There are plenty of lenders to choose from for your investment property. Whether you go with a traditional bank, a specialist lender, an online lender, or a wholesale one depends on your individual circumstances. You just need to ensure that you get the best deal available.

4. Research The Property Market

You have to understand the property market trends in the different regions of Australia. Knowing whether the property market cycle is in its growth, stagnation or decline or rebound phase can help you.

Contact several real-estate agents so you can compare property prices. It also helps to let them know you’re looking at other properties. That will encourage them to be more open with their information. You can use websites that update information about rents, property values, demographics and other data on various areas.

Ensure you’re informed by reputable sources such as CoreLogic, SQM research and government sources like the Australian Bureau of Statistics. Also, MyBMT is a free, helpful tool with a property research and insights feature.

Find a good location

You also need to make sure the property is located in a favourable location. Sometimes, the property you are looking at could be located in areas with postcode restrictions or have structural faults that prevent you from getting a home loan.

You can learn more on how you can choose a location for your investment property here.

5. Be Prepared To Negotiate

When negotiating on an investment property, there are different strategies you can use to get the right price. Start by recognising that listed prices can often be misleading, so conduct thorough research on comparable properties in the area to gauge fair market value. A property inspection can reveal issues that justify negotiating for a lower price. Understanding the seller’s motivations – whether they are in a hurry to move or emotionally attached to the home – can also provide valuable insights for crafting your offer.

6. Be Careful With Property Valuation

Sometimes, the actual valuation of your investment property might not match the estimation you or an appraiser made based on market analysis. In such a case, it can be difficult for you to convince the lender to change the loan structure mentioned in your application or challenge the valuation on your own. Having a mortgage broker by your side to present your case in the best possible way is ideal for such a situation.

7. Leverage Existing Equity

Equity is the difference between the current value of your property and the outstanding balance on your home loan. You can build equity by paying down your mortgage or benefiting from capital growth in your property’s value. Once you’ve built up equity, you can use it as leverage to finance the purchase of a new investment property.

8. Assess Your Investment Strategy

Any property you buy for your portfolio needs to support your investment strategy. Evaluate how each property contributes to your goals, whether by providing equity growth, cashflow, or long-term diversification. For example, if your strategy is to create a geographically diverse portfolio, buying multiple properties in the same area may not be ideal. Instead, you would want to invest in different locations to balance your risk. Consider whether the property will enhance your cashflow through rental income or appreciate in value over time.

9. Be Mindful Of Tax Implications

Owning, holding and buying your investment property all have tax implications. Whether you’re reducing your taxable income through negative gearing, paying capital gains tax when selling, or claiming deductions on property-related expenses, knowing how to navigate these tax rules will affect your cashflow.

10. Leverage Your SMSF

You can leverage your Self-Managed Super Fund for your investment property.
When you sell your investment property, you’ll be subject to a capital gains tax of about 25%. Setting up an SMSF is one method of avoiding some taxes and saving your hard-earned money.

For more information on this, sit with your accountant or financial adviser.