Ultimate Guide: Tips for Purchasing an Investment Property

Secure Your Investment. Confidently Purchase Your Property with our step by step guide

Need help with home loan advice

Submit your details and we'll be in touch to discuss your first home loan requirements.

    Ultimate Guide: Tips for Purchasing an Investment Property

    Secure Your Investment. Confidently Purchase Your Property with our step by step guide

    Need help with home loan advice

    Submit your details and we'll be in touch to discuss your first home loan requirements.

      To help you succeed we have created this step by step guide to help you with buying your next investment property.

      Man researching home loan options for an investment propertyBefore diving into the property market, it's crucial to outline your preferences and objectives. Consider the following:

      Location: Determine the ideal location for your investment property. Opt for areas with high tenant demand, proximity to employment hubs, public transportation, schools, and amenities.

      Type of Property: Decide between a standalone house or an apartment. While houses are popular for residential living, apartments offer distinct advantages for investment purposes. They are often more affordable, require lower maintenance, and offer cost-effective refurbishment options.

      Consider New Construction: Explore the option of building a new property or purchasing off-plan developments. This avenue provides opportunities for tailored investments. If opting for new construction, explore Construction Loans tailored for this purpose.

      By clarifying your preferences upfront, you can streamline your property search and make informed decisions that align with your investment objectives.

       

      Man researching home loan options for an investment propertyBefore diving into the property market, it's crucial to outline your preferences and objectives. Consider the following:

      Location: Determine the ideal location for your investment property. Opt for areas with high tenant demand, proximity to employment hubs, public transportation, schools, and amenities.

      Type of Property: Decide between a standalone house or an apartment. While houses are popular for residential living, apartments offer distinct advantages for investment purposes. They are often more affordable, require lower maintenance, and offer cost-effective refurbishment options.

      Consider New Construction: Explore the option of building a new property or purchasing off-plan developments. This avenue provides opportunities for tailored investments. If opting for new construction, explore Construction Loans tailored for this purpose.

      By clarifying your preferences upfront, you can streamline your property search and make informed decisions that align with your investment objectives.

       

      lady considering her home loan optionsBefore diving into the realm of investment properties, it's crucial to ascertain your financial capacity to avoid wasting time on properties outside your price range. Various factors come into play when determining your affordability.

      • Individual Purchase: If you're flying solo, your borrowing limit hinges solely on your financial standing.
      • Joint Purchase: For those teaming up with a spouse, partner, or family member, your combined finances shape your borrowing capacity.

      Deposit Importance: Your deposit size holds significant sway for several reasons:

      • 100% loans are a thing of the past; most lenders require a minimum of 10% down payment.
      • A larger deposit may secure a lower interest rate, reducing the lender's risk.
      • Aim for a 20% deposit to dodge Lender’s Mortgage Insurance (LMI) costs.

      Income Impact: Your income size greatly influences borrowing potential, with higher earnings translating to larger repayment capabilities. Include all income sources—salary, rent, interest, and business earnings—when applying for a loan.

      Expense Evaluation: Lenders scrutinize your expenses to gauge disposable income available for repayments.

      Utilize Home Equity: Leverage substantial home equity to borrow against it for your investment property, potentially sidestepping Lender’s Mortgage Insurance.

      Understanding Negative Gearing: When expenses exceed rental income, resulting in a loss, it can be offset against other income sources, offering tax benefits.

      Choosing Repayment Terms: Interest-only loans, favoured by investors, offer flexibility but typically come with slightly higher interest rates.

      By comprehensively assessing these factors, you'll unlock your investment property purchasing power, ensuring a fruitful venture aligned with your financial capabilities.

      lady considering her home loan optionsBefore diving into the realm of investment properties, it's crucial to ascertain your financial capacity to avoid wasting time on properties outside your price range. Various factors come into play when determining your affordability.

      • Individual Purchase: If you're flying solo, your borrowing limit hinges solely on your financial standing.
      • Joint Purchase: For those teaming up with a spouse, partner, or family member, your combined finances shape your borrowing capacity.

      Deposit Importance: Your deposit size holds significant sway for several reasons:

      • 100% loans are a thing of the past; most lenders require a minimum of 10% down payment.
      • A larger deposit may secure a lower interest rate, reducing the lender's risk.
      • Aim for a 20% deposit to dodge Lender’s Mortgage Insurance (LMI) costs.

      Income Impact: Your income size greatly influences borrowing potential, with higher earnings translating to larger repayment capabilities. Include all income sources—salary, rent, interest, and business earnings—when applying for a loan.

      Expense Evaluation: Lenders scrutinize your expenses to gauge disposable income available for repayments.

      Utilize Home Equity: Leverage substantial home equity to borrow against it for your investment property, potentially sidestepping Lender’s Mortgage Insurance.

      Understanding Negative Gearing: When expenses exceed rental income, resulting in a loss, it can be offset against other income sources, offering tax benefits.

      Choosing Repayment Terms: Interest-only loans, favoured by investors, offer flexibility but typically come with slightly higher interest rates.

      By comprehensively assessing these factors, you'll unlock your investment property purchasing power, ensuring a fruitful venture aligned with your financial capabilities.

      Lenders Mortgage Insurance and ConveyancingInvesting in property involves more than just the initial purchase price. It's crucial to factor in these additional costs:

      1. Stamp Duty: When acquiring a property, you'll need to pay stamp duty, a state tax due within 30 days of settlement. Rates vary as they're determined by individual state and territory governments.
      2. Lenders Mortgage Insurance (LMI): LMI is an insurance policy safeguarding lenders from financial losses if borrowers’ default on mortgage payments. Most lenders mandate LMI if your deposit is less than 20%.
      3. Valuation Fees: Before securing a loan, most lenders require a property valuation to assess its worth as security.
      4. Conveyancing: Conveyancing is the legal process of transferring property ownership. It's advisable to hire a conveyancer or solicitor to handle this process when purchasing a property.

      Understanding and budgeting for these additional expenses is essential for a successful investment property purchase.

      Lenders Mortgage Insurance and ConveyancingInvesting in property involves more than just the initial purchase price. It's crucial to factor in these additional costs:

      1. Stamp Duty: When acquiring a property, you'll need to pay stamp duty, a state tax due within 30 days of settlement. Rates vary as they're determined by individual state and territory governments.
      2. Lenders Mortgage Insurance (LMI): LMI is an insurance policy safeguarding lenders from financial losses if borrowers’ default on mortgage payments. Most lenders mandate LMI if your deposit is less than 20%.
      3. Valuation Fees: Before securing a loan, most lenders require a property valuation to assess its worth as security.
      4. Conveyancing: Conveyancing is the legal process of transferring property ownership. It's advisable to hire a conveyancer or solicitor to handle this process when purchasing a property.

      Understanding and budgeting for these additional expenses is essential for a successful investment property purchase.

      Gain an Edge in the Property Market with Pre-Approval.

      Pre-qualification, also referred to as conditional or preliminary approval, is your ticket to streamlined property investment. It's a commitment to lend you a specific amount, pending full approval. This crucial step remains valid generally for three months depending on the lender, giving you ample time to secure your dream property.

      Applying for pre-approval is quick and convenient.

      Empower Your Bidding Strategy

      Pre-Approval arms you with the knowledge of your borrowing capacity, enabling you to make informed offers or bids confidently. By knowing your financial boundaries upfront, you avoid wasted time on properties outside your reach, ensuring every viewing or bid counts towards your investment success.

      Gain an Edge in the Property Market with Pre-Approval.

      Pre-qualification, also referred to as conditional or preliminary approval, is your ticket to streamlined property investment. It's a commitment to lend you a specific amount, pending full approval. This crucial step remains valid generally for three months depending on the lender, giving you ample time to secure your dream property.

      Applying for pre-approval is quick and convenient.

      Empower Your Bidding Strategy

      Pre-Approval arms you with the knowledge of your borrowing capacity, enabling you to make informed offers or bids confidently. By knowing your financial boundaries upfront, you avoid wasted time on properties outside your reach, ensuring every viewing or bid counts towards your investment success.

      House Auction in AustraliaWhen purchasing an investment property in Australia, you have two main options: private sale or auction.

      Private Sale:

      Most residential properties are sold through private offers made via a purchase contract. Here's how it works:

      1. The owner sets the price for the property.
      2. You make an offer, often below the asking price, and negotiate with the seller.
      3. Offers are exchanged until both parties agree on price and terms.
      4. You pay a deposit, typically 10% of the selling price, and enter a cooling-off period.
      5. During the cooling-off period, you conduct legal, building, and financial checks.
      6. If you back out of the sale during this period, you may forfeit a small part of your deposit.
      7. The contract may include clauses for finance and building-and-pest inspections, allowing you to cancel the purchase if necessary.

      Auction:

      A property auction is a public sale conducted by an auctioneer, governed by strict rules:

      1. The auction is advertised with a specific time, date, and location.
      2. Prospective buyers bid on the property, with the highest bidder securing the property.
      3. The owner sets a reserve price, the minimum they're willing to sell for.
      4. Bidding continues until the highest bid meets or exceeds the reserve price.
      5. There is no cooling-off period for auction purchases.
      6. The winning bidder must provide a substantial deposit on the day of the auction, usually by cheque.

      Consider your options carefully when buying an investment property, weighing the benefits and drawbacks of both private sale and auction.

      House Auction in AustraliaWhen purchasing an investment property in Australia, you have two main options: private sale or auction.

      Private Sale:

      Most residential properties are sold through private offers made via a purchase contract. Here's how it works:

      1. The owner sets the price for the property.
      2. You make an offer, often below the asking price, and negotiate with the seller.
      3. Offers are exchanged until both parties agree on price and terms.
      4. You pay a deposit, typically 10% of the selling price, and enter a cooling-off period.
      5. During the cooling-off period, you conduct legal, building, and financial checks.
      6. If you back out of the sale during this period, you may forfeit a small part of your deposit.
      7. The contract may include clauses for finance and building-and-pest inspections, allowing you to cancel the purchase if necessary.

      Auction:

      A property auction is a public sale conducted by an auctioneer, governed by strict rules:

      1. The auction is advertised with a specific time, date, and location.
      2. Prospective buyers bid on the property, with the highest bidder securing the property.
      3. The owner sets a reserve price, the minimum they're willing to sell for.
      4. Bidding continues until the highest bid meets or exceeds the reserve price.
      5. There is no cooling-off period for auction purchases.
      6. The winning bidder must provide a substantial deposit on the day of the auction, usually by cheque.

      Consider your options carefully when buying an investment property, weighing the benefits and drawbacks of both private sale and auction.

      Once your offer on an investment property is accepted, whether through auction or private sale, we then proceed to formalise the conditional approval and get the loan formally approved with the lender.

      Mortgage Broker in Melbourne

      Christopher Berry | Owner and Director of Find A Better Rate Home Loans

      Christopher Berry is the owner of Find A Better Rate Home Loans which was establish in July 2015. Christopher has been a Mortgage Broker for the past 17 years and has arranged finance for all types of applicants from first home buyers to complex company and trust lending. Christopher has customers located all over Australia and can assist with all of your finance requirements. Christopher can be contacted on 0477 212 840 or email chris@findabetterrate.com.au

      Providing access to Australia's leading lenders and the most competitive home loan products

      Choose from over 40 different lenders and hundreds of different products