Investment property 101

Property can be a rewarding investment for first home buyers and experienced home owners alike. Learn more about finding the right investment property for you and things to consider.

Should you invest in property?

Even if you know what financial freedom looks like for you, it pays to know what you actually want to achieve from buying an investment property. Is it just so you can live off the rental income, or do you want to build equity to secure more properties? Clear goals are essential to your long-term plans, and will help you stick to them.

While investments such as shares or cryptocurrency have the potential for high returns in a short amount of time, they also carry high risk. On the other hand, property is a reasonably secure, long-term investment. Making the right choice of property means that your rental income could cover the costs of your initial loan, so you won’t be out of pocket as your equity grows. You could enjoy other benefits as well, including taxation relief through negative gearing. When choosing which investment is best for you, always remember that property requires a long-term commitment.

What investment property is right for you?

Build or buy

While building can be a lengthy and expensive process, you should be able to depreciate the cost of construction over a number of years. When you purchase an existing house or apartment, be aware that there are limited depreciation benefits.

You could, however, be receiving rent soon after purchasing an existing property, whereas you won’t see a single cent of rental income during the time that you’re building a new property.

An established property will also give you a much better idea of how its value fluctuates over time, while it will be much harder to make an informed decision around this when you build.

House or apartment

In the right location, both houses and apartments can be an attractive investment. It should always come down to what’s best for you; always make sure you purchase depending on what suits your budget, cash flow, and the type of property that’s popular in each area.

City or country

While the larger population of a city should lead to an increased demand for rental properties, there is also generally a lot more construction going on, which means renters have more options. This increased availability of rental properties could potentially limit what you might be able to earn.

And while country areas might have a much smaller population, some country centres typically offer a far cheaper entry point when it comes to buying property, and – surprisingly – can yield much higher rental returns.

What to look for in an investment property

It’s important to get the basics right. In general, always buy in sought-after locations that are close to public transport, with easy access to good schools and other amenities. This will help make your new property more attractive to prospective tenants.

What you need to consider

No matter how secure the property market may seem, there is always risk in any investment. Before you commit to buying an investment property, ask yourself the following questions:

1. Can you manage such a large debt with your current cashflow?
2. If any unexpected costs arise, will your income be enough to support the debt?
3. How will major life events such as having children, overseas travel, full-time study, changing jobs or even retirement affect your plan?
4. Will the expected returns of your new property exceed the borrowing costs, both now and into the future?

A common mistake any first-time investor can make is misunderstanding the cash flow of their investment. If you’re planning to invest in property, carefully consider the home loan you choose to finance it. And always talk to your financial advisor before making any big decision. They can help you decide if property investment is the best option for you.

We can come to you

Our Mobile Lenders can come to your home or workplace to assist you through the application process and help with any questions you have.