Buying an Investment Property: What to Consider?

Finance Nov 18, 2022

8 min read

Buying an investment property is exciting, but it is a big investment and should be acquired wisely, and be perfectly tailored to suit your personal circumstances. Investing in real estate is usually about capital growth, this makes it crucial to choose a property that is more likely to increase in value and also it is absolutely crucial to buy at the right price.


The key is to be patient and knowledgeable. Do your research, assess what everything is currently selling for in and around your area of interest and you will soon discover what property is worth. Make a decision now to find out how you can buy an investment property. One of the wisest things you can do to secure your financial future.


Rental Cash-Flow Vs. Capital Growth?

Establishing you have a stable rental income stream is critical, this cash flow will make the possession of the asset more affordable and provide you with income. Some areas you choose to invest in may offer higher rental yields although it is important that you do your research as often these properties offer lower capital growth opportunities.


What Can I Afford to Buy?

Buying an investment property is a certified way to long-term wealth, although you don’t want to struggle along this path so consider a medium to longer term investment. This ensures you are able to maintain your mortgage repayments comfortably over the long term. Once you own an investment property if done right it can prove to be quite inexpensive to keep it and service the loan. This is because you earn rent and get a tax deduction on many of the expenses associated with buying an investment property.

Below is an example of what it may cost for you to own an investment property. You should look at the cost of servicing the loan on an after tax basis, this way you can put the cost in real terms.

Purchase Price of Property: $600,000
Stamp Duty and other costs: $35,000
Amount Borrowed: $635,000
Rental Income Received: $460 per week
Ongoing Costs:
Interest Cost @ 4.5% p.a: $28,575
Rates: $1,200
Land Tax: $300
Agents Fee @ 7.7%: $2,200
Insurance: $500
Total Costs: $32,775
Less Rent: $23,920 ($460 x 52)
Annual Shortfall: $8,855
Less Tax Deduction @ 37%: $3,276
Annual after Tax Cost: $5,579


Be aware of taxes involved in property investing and include these in your calculations. Stamp duty, capital gains tax and land tax all need to be taken into consideration and remember that interest rates can vary over time.



Where Should I Buy?

The key is to be patient and knowledgeable. Do your research, assess what everything is currently selling for in and around your area of interest and you will soon discover you have become good at working out what property is worth.

If you find a property that you like and are unsure of its real value, contact us so you can arrange an independent valuation so once you are armed with this information you can use this as a good negotiating tool. Mortgage brokers have valuable data on different locations, properties and property developments, you should utilise this information to assist you in helping you make the best investment property decision.


What’s the Right Loan?

There are various options when it comes to financing your investment property. The interest of an investment property loan is generally tax deductible, although not all borrowing costs are immediately deductible. Structuring your investment property loan correctly is critical and this should be done with the help of a mortgage broker.

Whether you choose a fixed rate loan or a variable loan will depend on your circumstances, we recommend you consider options thoroughly before you make a decision. Over time variable rates have proven cheaper, although choosing a fixed rate loan at the right time can also pay off.


Manage Your Risks

Property is a long-term investment and you should not rely on property prices to rise immediately when looking at buying an investment property. Committing to a property means you are able to build up equity and consider buying a second investment property. Find the right balance between financial stability and still being able to enjoy life.

We understand the various loans available to investors and what options suit short-term and long-term property investment strategies. Choosing the right investment loan when buying an investment property is crucial as the wrong choice could cost you thousands of dollars over the life of your investment and even reduce your returns and flexibility in purchasing future investment properties.

Contact Entourage Finance
today to have an expert in investment property loans, help you understand what to do, and help you with your best options available when buying an investment property. Our services will provide you with the professional assistance you need to maximise your investment property acquisition and how to get an investment loan.

*Please note not all properties are created equally! This is just an example and should not be relied on when making critical financial decisions.