Buying an investment property can be an excellent way to build wealth; if done well, you can reap the benefits of passive income before retirement.
The property market is not always straightforward and easy money, though. Ensure you begin your property investment venture with the right advice, perspective, and tools for the journey ahead.
Here, we share four valuable investment property tips, ideal for new players in the investment property game: getting pre-approval for your loan, keeping a realistic budget, checking your emotions at the door, and contacting a broker for investment property advice.
#1: Get pre-approval for your loan
You may find yourself in a much stronger position if you have pre-approval up your sleeve before you head off to look for your chosen property. This rings especially true if you are at an auction, as you cannot make promises you cannot keep when making an offer.
Speak to your mortgage broker about the best loan product to suit your needs. You may not necessarily just want to go with the one that has the lowest rate — check out what each bank and lender has to offer in terms of fixed and variable products, associated fees, and break costs, as well as loan features like an offset account.
Choosing the right loan really does matter, and it can make your investment venture all the more successful if you choose the product that fits you best. Your mortgage broker will keep the process simple and moving along smoothly. It will look something like this:
Data collection: Once you have booked your initial meeting, your mortgage broker will send you a list of things to email back prior to your meeting or, alternatively, to bring with you.
Initial Interview: You will meet with your broker to discuss your needs, answer any questions you may have, and provide valuable investment property advice.
Loan comparison: Your mortgage broker will review and negotiate competitive finance from a panel of over 30 lenders and present you with options.
Application: After selecting your lender, you may be required to provide more documentation to prepare your application.
Pre-approval: Time to start hunting for the right investment property!
Full approval: Your lender will prepare your loan agreement and send it to your mortgage broker for review.
Signing documents: You will meet with your broker to understand your loan offer and sign the documents.
Settlement: Your mortgage broker will arrange a settlement date, liaising with your lender and conveyancer/solicitor.
Post settlement: Your broker will remain at your service in case you have any future needs such as refinancing, fixing, top-ups, and additional purchases.
#2: Keep a realistic budget
You should check your budget and other debts before buying an investment property. An investment property loan is a big commitment, no matter which way you look at it.
You might also want to chat with your mortgage broker to consider the upfront costs, such as your deposit (unless you are paying for the property price in full), your loan application fee and possibly lender’s mortgage insurance (if your deposit is less than 20%). Other associated fees and charges include stamp duty, transfer fees, and mortgage registration.
You will most likely need to engage a solicitor, which will incur some legal and conveyancing costs, and you may want to do your due diligence on the property. Think building, strata and pest inspection fees.
It is important to check through your budget to ensure you can service the loan over a long period of time (up to 30 years). A lot can happen during the term of your loan. Interest rates can vary over time, changing your repayments if not fixed at a certain rate.
You may need to renovate or repair your property, and there may be periods when the property is vacant.
There needs to be room in your budget for various circumstances and ongoing fees such as strata and council rates. All this being said, your budget needs to feel ‘watertight’, and any other debts that may be in your way may need to be taken care of and paid off before you begin your investment property trail.
#3: Check your emotions at the door
Your mortgage broker will be able to help you secure the best loan to suit your needs and even work out what the cash flow for your chosen property will be. It is hard sometimes, when dealing with a physical investment, such as a house or apartment, to not get emotionally attached.
It is worthwhile speaking with real estate agents in the areas you are looking at to gauge what kind of properties certain demographics are looking for. For example, there may be a lot of rental demand for a three-bedroom home with a renovated kitchen and bathroom close to the local school, or there may be a better demand for a one-bedroom apartment that is a stone’s throw from the train station and CBD.
Once you decide what type of property fits your financial strategy and find a growing area, stick to your plan. It is worth reminding yourself that this is an investment property for someone else to live in and for you to maintain, so finding a property that will not require you to be wasting your weekends repairing and checking on it is crucial.
#4: Contact us for investment property advice
At Watson Mortgages, we can show you how to start investing in property to achieve your investment goals. Contact us at (02) 4018 7505 for more information, or book an appointment with our Newcastle mortgage brokers today.
Disclaimer: The information provided in this fact sheet is not legal, taxation or financial planning advice. It has been prepared without considering your specific needs, objectives and personal financial situation. Before acting on this information, we recommend that you consider carefully if it is appropriate for your needs, objectives and personal financial situation. All loan products are subject to lender criteria and approval. Fees, terms and conditions apply. Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Licensing Statement: Watson Mortgages Pty Ltd Credit Representative 525053 is authorised under Australian Credit Licence 389328.
