By the end of these simple steps you should know everything you need to know to confidently purchase your investment property. And I’ll save you a lot of time by doing a lot of the hard work for you.
Step 1: Find out how much you can borrow Getting an idea of how much you can borrow is the first step to buying an investment property. It gives you a general idea of your target price range, so you can narrow your property search within your purchase budget.
Lenders will also consider the potential rental income you will get from the investment property when calculating how much you can borrow. To receive a free detailed assessment of your borrowing capacity talk to Holly Rogers at any time.
Step 2: Calculate your loan and purchase costs As a general rule, you will need about 20% deposit for an investment property purchase, however if you have existing property, you may be able to use your equity to cover more of the deposit. The criteria for deposits will differentiate between lenders. A Loan Market mortgage adviser will help you identify which lender will best suit your investment loan needs from a wide panel of secure banks and lenders – that’s step three but really working out your costs and loan options go together.
In addition to your deposit, you will need to consider the following costs:
Loan application fee
Valuation fees
Statutory government charges
Conveyancing and legal fees
Lenders Mortgage Insurance (LMI) if you are borrowing more than 80% of the property value.
Step 3: Research your investment loan options Property investment loans are available to suit just about any investment strategy. The common loan options for property investment include: Line of Credit loans - invest in property sooner if you already own a property. Line of credit loans tap into the existing equity you have built up in your existing property to use towards a deposit for your investment property.
Interest only loans suit investors who are focused on achieving capital growth in the short to medium term, and often go hand in hand with negative gearing.
You’ll also need to consider your loan repayment options; some property investors choose to pay interest in advance. Different repayment options will suit different investment strategies.
Property investment loans are not too different from any other type of home loan; you will need to compare rates, features, fees and charges. To discuss the competitive investment loan options available, speak to Holly Rogers.
Step 4: Get your loan pre-approval Your investment loan pre-approval will give you a head start on other buyers by having your loan application pre-approved, as well as ensuring you shop within your budget.
A formal pre-approval works the same as a formal loan application, except without the security details. With a pre-approval, your lender will assess your income, expenditure, assets and liabilities to determine how much you can borrow, as well as assessing the documentation normally required to get full loan approval.
Be wary of any pre-approval that has many conditions attached to it. Your mortgage adviser can help you to apply for a formal pre-approval
Step 5: Find a great property Whether you select a residential investment property, commercial investment property, or even a holiday rental investment property there is ample opportunity to invest. Consider the following when choosing your investment property:
Location: is the property in a location that will be well-tenanted or is likely to experience property price growth?
Demographics: is the property suitable for the type of tenants in the area, e.g. low-maintenance apartments for young professionals?
Infrastructure: is there appropriate infrastructure in place, such as transport, shops, cafes and schools?
Development: is there any development planned for the area that may improve existing infrastructure, leading to possible improvements in tenancy rates or price growth?
Holly Rogers is knowledgeable in the property market so if you have any questions about the investment buying or selection process, I’m here to help with that too.
Before you enter into negotiations for any place, find out if it was rented in the past: how much it was rented for, if there were any vacancy periods, how long it was vacant for, and why.
Step 6: Buying your investment property Conduct relevant searches including building and pest inspections. If you’re buying your investment property at auction you will need to complete all inspections prior to auction day.