Purchasing a residential investment property can be challenging if you don’t adopt the right approach from the outset. However, it is possible to maximise rental returns and manage your expenses if you develop an investment strategy that incorporates these five crucial elements:
The best strategies for driving revenue growth are long term.
If you are buying an investment property in the hopes of making a quick profit, you could be undermining your future earnings potential. Holding onto a residential address for a while can help you make the most of rising housing prices while also raising equity for potential future investments.
If you don’t know the dynamics at play in the neighbourhood you are considering investing in, find out.
Speak to multiple property managers and estate agents to determine community demographics, dwelling vacancies and local rental yields. In addition, look at local planning approvals for dwellings and infrastructure.
Be on the lookout for properties that appeal to a wide range of renters, from young professionals to families.
Certain features, such as a second bathroom or garage, have universal appeal, so waiting to invest in a property with these assets can improve your chances of attracting suitable, long-term tenants.
Your credit history and liquidity are important factors in trying to secure finance for buying an investment property.
Ownership of other dwellings can also affect the value of your loan and interest rate. Consulting with a financial advisor should help you get your personal finances ready and develop an investment strategy. Consulting a mortgage broker will help you secure the finance you need.
Seek the advice of a Buyer’s Agent/Buyers Advocate
we can advise you on the best approach to achieving your personal goals by ensuring that your criteria is met with each property purchase. With thorough due diligence and savvy negotiations, we can secure a property under market value, giving you instant equity and immediate capital growth.
Take these factors into account when purchasing a residential investment property, and your strategy will be well on the way to success!
The benefits of buying an Investment Property
There are many benefits to buying an investment property that go beyond adding a new source of income.
Those with an investment portfolio will know that property is one of the most secure and high-yield markets in which to increase your personal wealth.
The price of dwellings in Australia has increased significantly over time, meaning property is still suitable for the risk-averse. Additionally, purchasing an investment property diversifies your portfolio and spreads the risk, in case your other investments are failing to deliver the expected financial results.
Investment property also offers the chance for individuals to prepare a new taxation strategy that streamlines end-of-tax-year commitments. Many costs involved with purchasing a property, preparing it for rent and managing it - like fees paid against your loan, advertising for tenants and maintenance fees - are tax deductible.
Additionally, a negatively geared property (instances in which you lose money on the expenses associated with owning a property) can be claimed as a deduction against other taxable income. This approach to your personal taxes ensures you pay the exact amount you owe without additional costs.
As mentioned before. raising equity against the value of your residential investment property is the easiest way to finance future housing purchases. If you can prove your financial stability in repaying your mortgage on time, you will more easily be able to secure loans and other forms of financial credit from a bank or lending institution.
We understand that while the benefits sound great, many first-time investors remain cautious about how they will finance a purchase and will question whether property is a good investment.
Identifying the right investment strategy is fundamental to both the success of individual projects and securing your long-term retirement and lifestyle ambitions. The right strategy provides focus and alleviates those fears. Using cutting edge technology and artificial intelligence, our methodology is data-driven and scientific, geared to take the subjectivity out of investment research.
3 first-timer questions about property investment finances
1) What do I need to qualify for an investment loan?
This criteria is not exhaustive but is common for most Australian banks and lenders to require:
An ample deposit - at the moment it’s tough to borrow against more than 80% of a property’s value. That means you usually need to have a 20% deposit to secure a loan.
Recent savings - many lenders will also want evidence of recent accumulated savings, spanning at least three months, to demonstrate that you can manage your finances.
Clean credit history - a good credit rating is another tool used to indicate that you have the financial savvy to save.
2) How much can I borrow for an investment property?
Your borrowing power depends on the strength of your loan application:
Up to 85% - this is often the upper end of the scale for loans against the value of a property. Individuals need to demonstrate a strong income from stable employment, prove they can pay a 15% deposit and also show genuine recent savings of 5%.
Around 90% - individuals investing in an easily sellable property (which can be assessed against the market by a third party) with a big deposit and clean credit history may be able to get a 90% investment loan.
More than 90% - only select borrowers can borrow this amount, because qualifying individuals need to have a large deposit, perfect credit history and a proven investment portfolio. There are also restrictions as to the kind of investment property you can buy.
3) What are the costs of buying a first investment property?
On top of the purchase price of the dwelling, investors also need to factor in these expenses:
Stamp duty - this varies between states but can be as high as 6% of the property value.
Building & pest Inspection - not always necessary but often recommended a building and pest inspection will cost around $700.
Loan charges - this cost differs between banks and lenders, but a standard application or settlement fee for securing an investment loan for your property can reach $1,000.
Conveyancing costs - preparing legal documents, such as title transfers, mortgage agreements and other financial information are essential to meet fair trading compliance. This may be done by either a Conveyancer or Solicitor. Expenses differ by state and between individual, but can average between $800 - $1,500.
Transfer expenses - this government fee, to remove the vendor’s name and transfer ownership of the property to you, is essential for a fair and legal purchase.
Buyers Agent/Buyers Advocate - services are often charged as a percentage of the sale price of the home - 2% is very common. We recommend ONLY using a flat fee service ranging between $7,000 and $12,000.
Other things to consider
Here are just three topics our buyer advocacy team will talk to you about.
1) How you’ll manage your investment property
It’s all well and good buying a property that meets our requirements, but if you can’t put the resources into dealing with it, things might go sour quickly. We’ll ask questions like, do you have the time and financial backing to carry out renovations prior to renting? Or do you have the time to manage tenants or the ability to pay a property manager?
Of course, we’ll also be asking how much you intend to put down as a deposit, and what that means for your ability to invest in the property going forward. We might be able to suggest ways to adapt your strategy, balancing getting the best mortgage rate versus maintaining investment power.
2) Calculating return on investment in property
There are lots of variables to consider when it comes to calculating your return. How much you profit doesn’t only depend on the market. It also relies on what you’ll do to keep increasing the value, or what your strategy involves.
Some people buy property to fix up and sell quickly. Others buy property that should increase in value over time, benefitting both from rental income and capital gains when they sell. However, this might mean you’re doing something called negative gearing, and need to be in a suitable financial position in the first place to make this work long term.
3) Understanding rental yield and actual profit
It’s essential that you understand how to calculate rental yield correctly so you don’t end up out of pocket. In essence rental yield is the amount you paid for a property divided by the annual rental income. Multiple this by 100 to get a percentage yield.
However, the rental yield percentage alone doesn’t tell you how much you pocket from your investment. You also need to calculate essential expenditure, like mortgage payments, maintenance and insurance. Compare this to what you can claim on your tax return to get a more accurate idea of how your investment affects both your day-to-day and long-term finances..
How to maximise your property investment strategy
This may all be old news to those who have bought a residential investment property - but are you sure that your investment plan is offering the highest returns possible?
Buyer’s agents are vital partners in your purchase decision, from first selecting the investment area to negotiating the best possible price, Property Home Base can offer guidance on how to purchase a property that matches your investment goals and your investment strategy and maximise its effectiveness:
● Consider how you can raise the value of your investment property. Does your house need to be brought up to date with a bit of redecorating? Something as simple as a fresh coat of paint and new carpet can increase your chances of attracting the right, long-term tenant/s. Would an extension, adding an additional bathroom or expanding a kitchen, be worth the time and money? Whether getting ahead of the competition or matching neighbourhood trends, being proactive about maximising your dwelling’s desirability is crucial to giving yourself a pick of high-quality tenants. In doing so it’s essential not to over capitalise, we can advise you on the right balance.
● Your property management responsibilities can quickly get on top of you, especially if you own more than one dwelling. The associated expenses of these activities also mount up if left unchecked, reducing your rental income. A good property manager helps to relieve this burden by taking over day-to-day tasks. As Property Managers typically charge between 5-10% of your monthly gross property income (although prices can vary), you will need to decide if this expense outweighs personal time and financial costs. We can assist you in finding a good property manager that suits your needs and budget.
● A Buyer’s Agent/Buyers Advocate ensures that you buy a residential property that suits your exact financial and investment requirements. Without this impartial, specialist advice, how can you be sure that you have found the best property to maximise your returns? Our Strategic Property Investment Service combines high tech nationwide research and analytics coupled with expert analysis, review and negotiation. Combining technology with the human touch to ensure a consultative experience tailored to your strategy.
Property Home Base: Specialist agents for your Investment plans
Buyer’s Agent/Buyers Advocates are instrumental in finding your perfect residential investment property. But at Property Home Base, we take this commitment even further. Our team are called Buyers Advocates because we work for you and our most important goal is to match a dream property to your precise requirements.
We are also committed to service on your terms - life can get in the way of making a 9-5 appointment. With our help, this won’t stop you from buying the ideal investment property.
We offer a free one-hour consultation where our Buyers Advocate learn all about your needs and Investment goals, and then offer a personalised strategic solution on how you can reach them - book one today!
FREE 1 Hour Consultation
We come to you whenever, and wherever suits you best. On your lunch break in a cafe, after you have got home and put the kids to bed, or on the weekends. We are happy to make it work for you.