Key Considerations Before Buying an Investment Property

When you are looking to buy an investment property (and for the purposes of this post we are strictly talking residential property), before you can actually start looking to purchase one there is a number of important considerations to weigh up.

Key Considerations Before Buying an Investment Property
Key Considerations Before Buying an Investment Property

GOALS:

Firstly you want to look at how an investment property will fit in line with your overall wealth goals. An investment property is generally a long term and illiquid investment. This means that you would need to retain the investment property for a number of years and additionally you would not be able to readily access funds from the property if you needed to as you could do with liquid investments such as shares.

STRUCTURE:

Other things to think about before you actually start to journey down the investment property avenue is to think under what structure you would like to own this investment property. Properties can be owned under a number of different entities such as individually, through a trust or company or even through superannuation. Each has benefits and consequences and you would need to think about which one is most appropriate for your circumstances.

FUNDING OPTIONS:

If you still feel an investment property fits your circumstances, unless you are in the fortunate position of being able to fund an investment property with savings alone you would need to talk to a loan specialist or mortgage broker about funding options for the investment property. This will help you to determine how much you can look to spend on a property purchase. Additionally, it is important to note that different ownership structures will have different lending requirements which could change the amount and you can borrow and subsequent property you can purchase.

THE NUMBERS:

It’s all in the numbers. To look to buy a an investment property you will need to really review the numbers involved and how this relates to you and your circumstances. You may be able to borrow $1,000,000 for a property purchase but is this appropriate for your circumstances. When purchasing property there are costs involved even at the initial stage and you would need to review how this will be managed. Things like stamp duty and conveyancing fees will need to be paid upfront over and above the purchase price of the property. Additionally how much you have for a deposit (once again assuming lending is involved) will also dictate the property you are looking to purchase.

ONGOING COSTS:

Even after the property has been purchased it is vitally important to determine how this property is going to be funded and maintained. While you will get rental income from the property to help cover the ongoing costs of owning an investment property this may not be sufficient and you will need to ensure you have additional cash flow to fund a potential deficit or any additional one off expenses. As we have seen recently interest rates have risen substantially over the last year so why you may be in a position to cover any property expenses now you would need to factor in what they may be in the future.

Once you have established the basics of what you can borrow and what you can afford on an ongoing basis then you can look to find and purchase an investment property. We have the ability to assist you at each step along the way as well as sourcing a property to meet your needs.

Please feel free to contact us if need assistance with any step along the way.


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