Before you Start

There are lots of things to consider before buying an investment property. You need to make sure you understand both the short-term steps to purchasing and long-term considerations of owning an investment property . This section outlines areas to research and the steps to take to make sure you get it right.

Credit report

When borrowing money for an investment property, you need to have a good credit report. When you apply for a loan, the lender will perform a credit check and assess your financial history, including any previous credit applications made by you, and any payments on which you may have defaulted. It’s important you check your own credit report. If there’s something on your report you think could hinder your application, let us know immediately.

How to check your credit report

Sometimes a credit report can include a false or incorrect entry. Checking your credit report is usually free and it’s very easy to do. You can check by visiting one of the following websites:

How much can you borrow? Know your limit

The amount of money you are eligible to borrow depends on three things:

  • What kind of property you want to buy and how much it costs
  • Your income and savings history
  • Other financial commitments that you have, e.g. existing mortgage, car loan, credit cards, overdrafts etc. and how they affect your net income.

Make a budget based on your income and your non-negotiable outgoings.

From there, we can help you work out what you’re eligible to borrow and what type of investment loan will suit your budget and lifestyle

What deposit will I need?

The minimum deposit required to secure a loan is usually 10%. However, if you have a deposit of less than 20% of a property’s purchase price, you will be required to pay lender’s mortgage insurance. This can be a quite significant fee.

How much does it really cost to get a loan?

Purchasing a property comes with a lot of additional expenses. These are the associated expenses you can expect to incur when buying a property.

Loan application fee

This can also be known as the “establishment”, “upfront”, “start-up” or “set-up” fee. It’s a one-off payment at the start of your loan process. The fee covers the preparation of loan documents, the lender’s legal fees for loan set-up, and one standard lender valuation. Not all loans have an application fee.

Stamp duty

Stamp duty is a tax imposed by governments on people buying property. It varies from state to state. To find out how much stamp duty is required in your state, check your local government website, see below.

Legal representation

When buying any property, it’s important that you use a trusted conveyancer or solicitor. They ensure you meet all your legal obligations and all contracts are fair and transparent. Be aware that legal professionals will have different fees for certain services—so don’t be afraid to shop around. If you need help locating a reliable solicitor, please ask us for a referral.

Inspections

A reliable building inspector is very important to the success of your property investment, so it’s vital to factor in the cost. A building inspection could save you thousands by alerting you to major structural problems or other costly repair requirements. A professional building inspection report can also serve as a bargaining tool for negotiating on price or contracts.

Buying the right investment property

Before you invest in any property there are some key factors to consider

1. What do you want to achieve?

Are you looking for rental yield, capital growth, or both? Is this your first, second or 10th investment? Whatever your goal, you need to plan for success.

2. Think strategically about your investment

If you’re looking to maximize returns, consider buying a property in an area that is up and coming. Likewise, also look for property that’s in need of renovation or redevelopment. Let
your goals define what type of investment you make

3. The type of property

Look for a property in an area with strong rental demand. Nowadays, people are often content to trade a big backyard for location and convenience

4. Buying old or new

When purchasing a new unit, many owners in the building will most likely be investors too. Consider a property with a larger ratio of owner-occupier tenants, as they typically look after a building better than investors. If investing in an older apartment, shop around and look for one in a character-filled block that has the potential to be cosmetically refurbished. This provides the opportunity of increasing your rental income and capital growth.

5. Where to buy

Location is very important when it comes to your investment’s long-term performance. Look for property in areas that are becoming gentrified or are being redeveloped. You should also look for investment property close to amenities such as public transport and schools.

6. When to buy

The best time to buy an investment property is when everyone else isn’t buying! Take advantage of periods when auction clearance rates are low or falling. This will give you more power to negotiate on the price. If you’re unsure, chat to us—we know the property market, so we can help you time your investment.

7. What you can afford

We’re here to help you decide how much you can afford to spend and repay before you even look for a property. We can also help you with getting a pre-approved loan, setting aside some funds for acquisition and holding costs, as well as designing a financial buffer for an emergency or a rise in interest rates.

8. How you’ll set up your purchase

It can often be advantageous to own your investment property in an entity (buying in your company name, super fund or a trust) that protects your assets and legally reduces your tax. Talk to your accountant about tax minimization strategies

9. Expert advice

When buying your investment property When purchasing an investment property, seek the advice of an accountant, a property strategist, a mortgage broker (that’s us) and a solicitor. This will help ensure your investment is a success.

Research before you buy and know your market

Before you purchase an investment property, research the market and seek professional advice. Here are some other things to consider that we can help you with:

Know where the market sits within the property cycle. This gives you a better chance of finding a property at the right price.

Find a property that’s close to local amenities such as schools, public transport, parks, restaurants and cafes.

Look for areas experiencing population growth as this will increase demand for your property both with tenants and prospective buyers.

Search for a property that works for your investment strategy.

Research current sale prices against historical sale prices to get an idea of growth.

With our help as your mortgage broker, find the loan that fits your goals and lifestyle.

Get pre-approval

A loan pre-approval provides you with proof that a lender considers you eligible to borrow a certain amount. With pre-approval you can bid and negotiate with confidence.

Documents you’ll need for pre-approval:

Evidence of your deposit, which ideally should be at least 10% of what you want to borrow
A budget showing your regular expenditure. This is called your living expenses assessment and must be very accurate. We’ll work with you to put this together for the lender
Evidence of your savings history
A letter from your employer confirming your employment or a copy of your employment contract
Your last two tax returns, with details of income from salary and investments
At least the last three month’s payslips

Settlement

After you have made a successful offer or bid on a property, you enter into the settlement stage. This is the last step in the process, where you finalise your investment loan and do all the paperwork to make your property legally yours. We help you throughout these final steps, and beyond.

What happens on settlement day?

Settlement day is when you legally take ownership of your new property. Lots of things happen at once, including transferring finances and signing legal documents. It can be a little hectic—having a mortgage broker helps reduce the stress, so you can focus on getting your investment ready to make a return.

On settlement day:

Evidence of your deposit, which ideally should be at least 10% of what you want to borrow

You receive the title of the property and the vendor’s solicitor or bank will arrange for the Registrar General to register the transfer of the property into your name.

Both parties are required to advise the agent in writing that settlement has occurred, allowing the agent to release the keys to you.