1. Be clear on your goals +
- It’s a good idea to consider the realities of the property investment alongside its potential benefits. Think about why you’re investing in the first place, and whether it fits with your particular set of circumstances – this will also help to guide your next steps. For example, you’ll need to make sure you can cover your loan repayments without greatly affecting your lifestyle, and consider if you’re comfortable with the risks involved, like a possible drop in market value or interest rates increasing significantly.
2. Do your research +
- Doing your research first will help you clarify your options. And there’s a lot to consider: from whether you’re looking for an apartment or a house, to suitable suburbs and how much you can afford to borrow with an investment loan (see point 3).
It’s also a good idea to decide whether you’re buying to make an income now, or as a longer-term investment. Then research the property’s potential for capital growth, rental income and ongoing costs.
3. Set a budget within your means +
- Lenders will generally ask for a minimum deposit of between 10% and 20%. You’ll also need enough upfront cash for things such as stamp duty, legal and conveyancing fees, insurances, maintenance, and interest on borrowings.
Also consider how the cost of your borrowings could impact your investment. Many Australians have variable interest rate loans, which means their borrowing costs can fluctuate. It is worth considering how changing interest rates could impact your investment, and looking at the options for fixed and split interest rate loans.
4. Check your credit history +
- Make sure the details in the credit history report are correct. It’s a good idea to do this before you start inspecting properties. Visit the ASIC’s moneysmart.gov.au for resources and more information.
5. Set your timeframe +
- Setting yourself a timeframe for saving a deposit and then purchasing a property will help keep you accountable to your goal and gives you something to work towards. However, make sure you keep in mind market conditions and have a flexible mindset in case things change.
6. Decide who’ll manage the property +
- If you’re time poor or live a long way from your investment property, you might want to appoint a property manager or real estate agent. Keep in mind that this service will incur property management fees.
7. Consider whether you need insurance +
- Acts of nature, building repairs, contents, and loss of rental income are some of the things to think about. The type of cover and the premiums you’ll pay can vary greatly depending on the provider and the policy you take out.
8. Budget for the little things +
- council rates
- water rates
- strata fees
- repairs and maintenance
- property management fees
- estimated vacancy costs, including lost rent and advertising
- insurance, such as landlords’ insurance
- other charges, such as land tax.
It’s not just the deposit you need to consider when saving to buy an investment property. You may want to do some renovations before you rent out your property, and you’ll also need to budget for ongoing property costs such as: