Residential Real Estate Investment
If you're considering buying property, you should certainly do your homework on the real estate market before you get started, and we are excited to be here to help you with the financing process. Several factors have pushed many budding investors to reinvest in bricks and mortar, including recent share market declines, tight rental markets and an increase in property prices.
The steady and consistent growth of the Australian property market over the long term is what makes it a sound investment.
However, it doesn't happen overnight. Most real estate cycles last between seven and ten years, with highs and lows.
Thanks to an ongoing shortage of housing in Australia and a government tax system that allows tax deductions for losses on investments, housing has continued to be a solid, long-term investment.
Nevertheless, since the Global Financial Crisis, credit has tightened, leading lenders to be more careful about to whom they lend and for what purpose.
It is our mission in this new environment to help you find the right lender and the right loan for your situation. You will also have more time to find the perfect property as we sort through all of the investment loan options available.
Property Investing Checklist
Investing in property, such as residential real estate, is likely to be a lengthy process and one that usually involves a long-term plan. To ensure you have considered what is required before making the big purchase, we’ve outlined steps you need to take in that process.
Do the numbers
A property investment must be a long-term commitment in order for it to be worthwhile, so the very first step is to ‘do the numbers’ to evaluate your budget, potential constraints and future financial and personal obligations, including the potential impact on family members.
Consider your future as far ahead as you can – remember that you should be expecting to hold the property for a minimum of five to ten years. You need to assess your ability to maintain, or increase, personal income, as well as your commitment and ongoing financial capability to continue to service the investment which will incur other costs in addition to loan repayments.
Obtain professional advice
Once you’ve run the number, you’ll need to obtain professional advice. An investment in real estate is likely to be significant in relation to your current financial position.
Discuss the investment with a licensed financial planner or investment adviser to check if residential real estate is appropriate in your current circumstances. Consider aspects including rental return, maximum capital growth and/or tax effectiveness.
Talk to relatives and friends
Talking to friends, family and acquaintances who have already made such an investment, or are currently considering one, can help your awareness of stumbling blocks and potential issues that you might otherwise miss. While any issues you face may seem new, it can help to bounce these off a trusted friend or relative who has been there before.
Collect your information and seek pre-approval
To apply for finance, you will need proof of your current income, employment, and your assets; as well as all liabilities, including debts, loans, rental payment, outstanding credit card obligations and any other payments including buy now pay later commitments.
Collate these and any paperwork that helps support your personal position. For example, if you have been a long-term tenant, get a 12-month tenancy statement that proves your capacity to make regular repayments.
Before applying for a loan, minimise your current debt load, and if possible, reduce the limit on, or cancel, any credit cards you have, as this is perceived by lenders as potential for debt.
It is strongly recommended that you have a fully assessed pre-approval before you start your search. This will allow you to know what your financial limits are so that you can make an offer when you’ve found a property you like.
Treat the purchase as a business decision and commit
While an investment property purchase should be a business decision, not an emotional decision, it is wise to consider choosing a property based on whether you feel like you could live in it.
Also consider what type of properties appeal to the people living in the area – your tenants (or perhaps an owner/occupier you might sell to down the track) are making an emotional decision when they decide where to live.
You also need to make the commitment to ‘manage’ the investment – even if you outsource the day-to-day tasks involved, including locating suitable tenants, collecting rents, paying relevant costs in rates and taxes, and ensuring that the property’s repairs and maintenance are kept up to date.
FAQ
| What Is Negative Gearing ? | If you earn less from an investment property than it’s costing you, you’re said to be negatively geared. The motivation to be negatively geared is that it reduces your taxable income and you accept a short-term loss in the hope of a capital gain later. |
| How Much Does a Property Manager Cost? | The cost of having a professional manage your rental property is between seven and ten per cent of your total rental income each week. So, for a property with an average rental return of $550 per week, you would need to pay the agent between $38.50 and $55 per week, which amounts to between $2,002 and $2,860 per year. If you compare this to the time commitment and potential costs you could face if you were to represent yourself at the tribunal, this weekly management fee is marginal. |
| What’s the Different Between an Investment Loan and Home Loan? | Unlike a home loan, costs associated with an investment loan are tax deductible (eg interest, repairs, rates, depreciation, etc). However, be aware that any rental income will generally increase your taxable income. Another key difference is that any appreciation in the value of an investment property (capital gains) is taxed. |
| What Are the Additional Costs When Purchasing an Investment Property? | Along with the cost of your deposit, you need to account for the cost of building inspections, stamp duty, conveyancing fees and any legal costs. |
| What Are the Ongoing Costs Associated With an Investment Property? | Ongoing, as the owner of an investment property, you will need to pay council rates, water rates, insurance, body corporate fees, land tax, property management fees, repairs and maintenance costs. |