Property investment can be an excellent way to build wealth and generate passive income, but it’s crucial to understand the process before jumping in. With the right knowledge and guidance, you can navigate the Australian property market with confidence and make smart investment decisions that will set you up for financial success.

Whether you’re a seasoned investor or a first-time buyer, this blog will provide you with the essential steps and tips you need to know to make a successful property investment in Australia. So, let’s get started!

How To Buy an Investment Property In 6 Easy Steps

Buying investment property doesn’t have to be complicated, but there’s a lot you need to know to do it the right way. While they’re an excellent way to generate wealth, Investment properties are riskier than many people think. Thankfully, there are a lot of resources available to help you set a strong foundation and give yourself the best chance at success.

Step One: Determine What You Can Afford

The first step is to determine your budget by creating a detailed analysis of your finances. This will help you understand how much you can comfortably afford to repay while factoring in your everyday living expenses, existing debts, and other financial commitments. It’s important to have a realistic estimate of both income and expenses for your future property investment.

You may also want to factor in things like rental income (if you’re planning on renting out the property) and whether you can use an existing home loan to increase your spending power. However these things will be easier to factor in once you’re closer to choosing a property.

To get an estimate of your borrowing power, try out moneysmart.gov.au’s mortgage calculator based on your expected rental income and lifestyle. Alternatively engage a qualified mortgage broker who can assist with your borrowing capacity.

Step Two: Save Up for a Deposit

The next step in our property purchasing guide is to determine the amount you need to save for a deposit. As a general rule, a 20% deposit of the purchase price is required to avoid paying lender’s mortgage insurance (LMI). Keep in mind to also consider other significant upfront costs, such as stamp duty and legal fees, when preparing your budget. If you don’t have a 20% deposit saved up, there are alternatives to consider, such as leveraging equity in an existing property (if you own one) or paying LMI, which can help you to purchase a property sooner.

Step Three: Find the Right Loan for You

When purchasing an investment property, it’s important to choose the right loan to suit your investment strategy. Investor loans differ from owner-occupier home loans, with different rates, terms, and conditions. One important consideration is whether to opt for a fixed-rate or variable-rate loan.

Fixed-rate loans offer repayment stability and certainty over your repayments, while variable-rate loans can provide more flexibility and the ability to make additional payments or access features such as redraw or offset accounts.

Another consideration is whether to opt for a principal and interest loan, which can help pay down your loan faster and reduce the amount of interest paid overall or an interest-only loan.

With an interest-only loan, your monthly repayments will be lower for a set period, but you will only be paying off the interest and not the principal loan amount. Some investors choose this option if they are using a capital growth strategy and want to reduce expenses while waiting for property prices to rise.

Ultimately, the type of home loan you choose will depend on your investment strategy and goals. It’s important to carefully consider your options and seek professional advice if needed.

We recommend that you engage with a qualified mortgage broker who can sort out what appropriate loan is suitable for you.

Step Four: Find the Perfect Property

Buying an investment property requires a more systematic and rational approach than buying a home to live in, focusing on expected returns rather than personal tastes and preferences.

To choose the right property for your needs, it’s important to research up-to-date market data and trends using resources such as RealEstate.com.au and Domain.com.au. Consider growth areas, future developments, lifestyle amenities, and proximity to schools, transport, and hospitals. Once you’ve narrowed down your search to a specific location, compare different properties in the area to determine rental prices and potential rental yield.

The type of property you choose will also have an impact on your rental income and yield, and your budget will play a big part in determining what you can afford. Consider whether apartments/units, houses, or building your own property is the best option for your investment strategy and financial situation.

If time is an issue, you may want to engage a qualified buyer’s agent or real estate agent in the area you are looking to help with your search for the right property for you.

Step Five: Run the Numbers

It’s vital that you do your numbers on a property and factor in costs including:

• Purchase Price
• Stamp Duty
• Mortgage Transfer & Other Government Charges
• Legal Fees
• Borrowing Costs including upfront and ongoing
• Rental Income & allow for vacancy periods
• Property management fees
• Landlord insurance
• Depreciation costs
• Maintenance and any renovation costs
• Water, government rates and body corporate levies (if applicable).
• Land tax payable.
• Any tax benefits you may be entitled to to help minimise your out-of-pocket expenses.

Step Six: Find Professionals Who Can Help You

The most effective way to do things properly and increase your chances of success is to work with professionals with experience. Your financial adviser, mortgage broker, and property manager (if renting) are going to be regular contacts, as they will be able to help you work through many of the issues that come with owning an investment property. 

The right professionals will be able to find the right loan with good terms, set up the legal and financial structures surrounding your investment property correctly, and ensure the property is managed well, if you’re planning on renting it out.

Investment Property Checklist

If you’re just looking for a quick checklist to refer to, use this guide. You can take a screenshot and mark it on your phone or copy it for later use.

• Determine your budget
• Save a deposit
• Find the right loan
• Research the market to find the right property
• Run the numbers to make sure you’re ready
• Find a team of professionals

Our Top 10 Property Investment Tips

1. Be clear on your goals
2. Do your research and do the maths
3. Don’t set and forget
4. Get professional help
5. Don’t underestimate ongoing costs
6. Buy in a growth area
7. Be realistic about your investment goals
8. Buy with your head, not your heart
9. Get a building inspection.

Focus Partners Australia Can Start You on the Right Path

The first step is working out what you can afford and how you’re going to afford it. That’s where we come in.

At Focus Partners Australia, we are passionate about empowering our clients to have an exceptional lifestyle through a comprehensive approach to holistic advice, investments, super, and wealth management.

We can put together an indicative cash flow for a property to see if it fits into your lifestyle. While we cannot recommend a specific property, as you will need to engage another expert in that field, whether it be a real estate agent or buyer’s agent, we have an extensive network of professionals we can call upon to assist. We also recommend you engage with a tax advisor to determine the best structure to hold that property as different structures will have different benefits or disadvantages which need to be explored.

As financial advisors, we allow you to concentrate on the more enjoyable aspects of life. You want your money to grow over time, so you can use it when you’re no longer working, or so it can supplement your income to help keep pace with your current lifestyle.

We have extensive experience helping:

• Patent Attorneys
• Lawyers
• Retirees
• Business Owners
• High Net Worth Individuals

We help people build wealth, enjoy what they’ve worked hard for, and leave a legacy they can be proud of. Contact us today to discuss your needs with an expert.