Planning is crucial for a successful property investment journey. Investing in a rental property is a significant financial commitment, and taking the time to seek expert advice and plan meticulously before taking any action can yield the best results.
How to get started investing in Property in 2024
Investing in property can seem daunting, but with a solid plan in place, it's easier than you might think. If you're new to property investment and unsure of where to start, don't worry - your Settled Home Loan broker can offer expert advice to get you on your way. And, if you already own a home, you may be able to use the equity you have built up to purchase an investment property.
Australia's rental markets are still going strong, making it an ideal time to invest. So, take advantage of the current market conditions and start planning your investment strategy today!
Things to Think About When Investing in Property
Assessing Your Finances
Are you in a good financial position to afford an investment property? It's important to think ahead, especially during those inevitable times of vacancy. It's not just about how much you can borrow, but also about how much you can realistically afford to repay, given your current financial situation. You can check out our repayment calculator to get a better understanding of what your ongoing loan repayments might look like.
Can you afford the right property?
Before you dive into buying an investment property, it's important to consider whether the property is desirable for quality tenants and has the potential to deliver healthy long-term returns.
Apart from the affordability aspect, there are several other factors that can affect tenant appeal, such as the location of the property, access to transportation, and the availability of local amenities like shops, schools, and entertainment facilities. Additionally, proximity to employment opportunities can make your property an attractive choice for potential tenants.
By taking these factors into account, you can increase the chances of attracting good quality tenants and enjoying a successful long-term investment.
What are your future goals?
Have you thought about your long-term investment goals and financial stability before investing in a rental property? It's essential to assess your ability to hold onto your investment for an extended period and whether you might need access to your invested capital in the near future.
It's crucial to consider where your investment fits into your overall financial plan. Is your rental property going to be used as a future residence or a stepping stone to purchase more investment properties to grow your portfolio? Understanding your investment goals will help you make informed decisions and achieve financial success.
Have you created a budget that’s aligned to your future goals?
When you're investing in property, it's crucial to understand the upfront and ongoing expenses involved. These expenses can be quite significant, so it's important to factor them into your budget and investment plan from the outset. Some of the expenses you'll need to consider include property management fees, insurance costs, repairs and maintenance, and potential periods of vacancy.
By having a clear understanding of the expenses involved, you'll be better equipped to make informed investment decisions and avoid any unexpected financial strain. So, take the time to research and understand the full scope of costs associated with owning an investment property, and you'll be well on your way to a successful and profitable investment journey.
Are you confident that you know your borrowing capacity?
Before embarking on your property investment journey, it's important to have a clear understanding of your borrowing capacity. This will give you an idea of the type of property and location you can realistically afford, and help you set a budget for your investment. To calculate your borrowing capacity, you'll need to consider your income and expenses. By using our home loan quote tool, you can quickly and easily get an estimate of your serviceability and find out how much you may be able to borrow. This will help you narrow down your search and ensure that you're looking at investment properties that are within your financial means.
Do you require cash for a deposit for your investment property?
If you're a property owner, you might not need to save up for a cash deposit to purchase an investment property. By tapping into your home equity, you can access the value that you've built up in your home over time and use it as a deposit for your investment property. This can be a viable option if you don't have a lot of savings or if you want to avoid depleting your cash reserves. By using your rental income to pay off your investment property loan, you can build your wealth and achieve your financial goals over the long term. Keep in mind that using home equity does come with risks and it's important to seek professional advice to determine whether it's the right strategy for you.
Selecting the ideal property for your portfolio
When investing in property, it's important to consider two key factors: affordability and tenant appeal. First, you need to ensure that the investment property you choose is affordable and fits within your budget. This will help you avoid any financial strain and ensure that you can comfortably make your loan repayments. Second, it's important to choose a property that appeals to a wide range of tenants. This will help you attract quality tenants and keep your property occupied, ensuring a steady stream of rental income.
Factors to consider for tenant appeal include location, access to amenities, and proximity to employment opportunities. By finding a property that meets both affordability and tenant appeal, you can set yourself up for a successful and profitable investment.
Affordability
As a landlord, it's important to be prepared for the initial stages of owning an investment property. During the first few years, it's common for the property to be negatively geared, which means the expenses of owning the property outweigh the rental income it generates. While this can offer tax benefits, it's crucial to ensure that you can comfortably manage the costs. Additionally, even the most sought-after properties experience occasional periods of vacancy, so you should be financially capable of covering loan repayments during these times. By planning ahead and factoring in potential expenses and periods of vacancy, you can set yourself up for success as a property investor.
Tenant appeal
It's important to keep in mind that attracting quality tenants is essential for the success of your investment property. To ensure your property appeals to potential tenants, it's a good idea to take an objective approach when evaluating properties. Ask yourself if you would be happy to live in the property and if it meets the needs of a wide range of tenants. If you're unsure, prospective tenants may feel the same way. For more tips on finding the right investment property, check out our resources on enhancing tenant appeal.
Once you have a clear understanding of your current financial position, your personal goals, and your ability to afford an investment property, you can start building your investment property portfolio. With the right planning, expert advice, and a little bit of luck, investing in property can be a rewarding way to build long-term wealth.
What are the ongoing and upfront costs of investing in property?
Pre-purchase pest and building inspections
Conducting thorough property inspections is crucial to ensure that you don't encounter any unpleasant surprises, such as building defects, illegal renovations, or pest infestations that can be costly to rectify. By getting a professional to inspect the property, you can identify any potential issues and factor them into your decision-making process, giving you peace of mind and avoiding any unexpected expenses down the track.
Strata search
If you're considering investing in a unit, apartment, or townhouse, it's crucial to conduct a strata search to identify any potential issues. This search will uncover any existing disputes within the building, any outstanding repair bills, or any sub-standard repairs that may have been carried out. This information will help you make an informed decision and avoid any unpleasant surprises down the line.
Stamp duty
Stamp duty is a tax charged by state governments and it is based on the price you pay for a property. When you purchase an investment property, you will need to pay stamp duty, which is an upfront cost. The amount of stamp duty you pay is added to the capital value of your property and will be taken into account when calculating any potential capital gains tax when you sell your investment. To get an estimate of how much you might need to pay in stamp duty, you can use our stamp duty calculator.
Borrowing costs
LMI is a type of insurance that you might have to pay if you're borrowing more than 80% of the property's purchase price. It's a one-off premium, and the cost will depend on the amount you borrow and the value of the property. Just be aware of these extra costs when planning your investment property purchase!
Legal fees
Another cost to keep in mind when purchasing an investment property is conveyancing fees. These fees cover the legal costs of transferring ownership of the property from the seller to the buyer and are usually handled by a solicitor. This process is also known as 'conveyancing.' It's important to factor in these costs when budgeting for your investment property, so you can ensure that you have enough funds to cover all necessary expenses. If you want to learn more about conveyancing, we have a helpful guide available for you.
Ongoing costs
As a landlord, you should be aware of the ongoing expenses that come with owning and managing an investment property. However, many of these costs can be claimed on tax, so keep track of your receipts and speak to an accountant to ensure you receive the maximum tax benefits. Here are some typical expenses to keep in mind:
- Accountant or tax agent fees
- Council and water rates
- Body corporate fees
- Lease expenses, including legal fees for drafting leases
- Land tax
- Management fees paid to real estate agents, which are typically around 7% of the gross rental income
- Landlord insurance (which provides comprehensive protection for your investment)
- Letting and re-letting costs, including advertising expenses
- Loan interest (if you're using a variable rate loan, be sure to factor in the possibility of higher repayments)
- Repairs and maintenance costs, including cleaning and gardening expenses.
Interest Only or Principal & Interest loans - Which Is Right For You?
There's often a debate on whether to opt for interest-only or principal and interest repayments when it comes to investment properties. While interest-only repayments provide more flexibility and cash flow, it may not always be the best option. The choice between interest-only or principal and interest repayments depends on various factors, such as your borrowing capacity, goals, and plans for future property purchases. For example, if you're looking to expand your property portfolio, an interest-only loan may work well for you. On the other hand, if you prefer to pay less interest and build equity in your current property, a principal and interest loan may be more fitting. Always consider your situation before making a decision on which loan option is best suited for your investment strategy.
Exploring the tax advantages of investment properties
Investing in residential property can be advantageous for a variety of reasons, one of which is the tax concessions available to landlords. By claiming tax deductions on the expenses associated with owning and renting out a property, you can reduce your taxable income and potentially save thousands of dollars each year. Some of the expenses that are tax deductible include repairs and maintenance, interest on your mortgage, council and water rates, and property management fees.
In addition to tax deductions, landlords may also be eligible for other tax benefits such as depreciation on the property and capital gains tax exemptions when the property is sold. It's important to note that tax laws can be complex and it's always a good idea to seek advice from a qualified accountant to ensure you are maximising your tax benefits while remaining compliant with regulations.
Positive and negative gearing are two strategies that landlords can use to manage their investment properties. Positive gearing occurs when the rental income exceeds the expenses associated with the property, resulting in a profit. Negative gearing occurs when the rental income is less than the expenses, resulting in a loss. While negative gearing can provide tax benefits, it's important to consider the long-term financial viability of this strategy as it relies on the property increasing in value over time.
Whether you choose positive or negative gearing, investing in residential property can be a smart financial decision. With careful planning and expert advice, you can enjoy the tax benefits and potential for long-term growth that comes with being a landlord.
