Understand the path to property investment

Whether you’re looking to diversify your portfolio or generate a passive income, there’s a reason why property is a popular option for investors.

So, if you’re looking to step into the world of property investment, follow our 8-step guide to help you get started on your journey.

Step 1: Begin with your budget

One of the first steps to becoming a property investor is to review your budget. Take your time to assess your current financial situation. Review your income, expenses and debt. It’s even worth having a look at your credit score while you’re at it.

It can often be a good idea to chat with a mortgage broker or your lender early in the process to get an idea of your borrowing capacity. That way you know what price range you should be looking at to begin with, rather than leaving it until later down the track and getting a rude shock. And don’t forget to take into account all those additional expenses that come with purchasing a home, like building and pest inspections, conveyancing fees, mortgage registration fees and stamp duty to name a few.

Step 2: Run the numbers

While it’s essential to understand what you can afford to spend, it’s also worth considering what you can afford to maintain once you have an investment property. Homeownership comes with a range of different ongoing expenses that you’ll need to budget for now and into the future.

Consider costs like mortgage repayments, council rates, utilities, insurance, strata or body corporate fees and property management fees if you engage a real estate to look after the management of your investment property. While you might be able to afford these expenses now, it’s also worth building a buffer in your calculations in case your financial situation changes or interest rates increase.

Step 3: Understand your goals

When it comes to any investment, it’s important to be clear about your financial goals and investment objectives. Are you looking for long-term capital growth, rental income or a combination of both? Understanding your reason for investing can help to guide your decisions when it comes time to pull the trigger.

Step 4: Time to strategise

Once you’ve clarified your goals, it’s time to turn your attention to finding an investment strategy that aligns with your objectives. The two main options are growth or yield strategies.

Capital growth strategies focus on how much a property is likely to appreciate over time and the potential capital growth to be had later down the track. Alternatively, yield strategies focus more on how much rent a property can bring in.

Ultimately, the strategy you choose is up to you but it should align with your financial goals.

Step 5: Location, location

When it comes to the actual home-buying process, it’s essential to do your research. One of the main factors to consider is the location of the property. The better the location, the more likely the property will be to increase in value and attract suitable tenants. Explore areas with future infrastructure developments, employment opportunities and population growth. The ideal location will also depend on the type of property you purchase.

Step 6: House vs. unit

While you’re doing your research, it’s also important to consider what kind of property would make the best investment based on your financial situation and goals. If you’re working with a limited budget or you’re aiming to maximise your rental yield, investing in a unit could be a good choice. Units are often more affordable to buy and maintain compared to freestanding houses. This also means that there’s the potential for greater rental yield compared to a house.

With that said, historically speaking, houses tend to increase in value more than units, which could be a major bonus if you’re following a capital gain strategy. Because the block of land holds more value than the structure built on top of it, a house on a sizeable block in a good location can represent a good investment.

Whether you opt for a house or a unit, it’s important to make sure the property has amenities and facilities that are likely to appeal to tenants in the area. This can help to make your investment property more attractive as a rental.

Step 7: Explore your financing options

Another important part of the research process is exploring the different loan options that are available to you. Shop around for the best interest rates and terms. While the home loan application process is much the same for an investment property as it is a live-in property, banks and lenders tend to view investment properties as higher risk. With higher risk usually comes higher interest rates to help offset the level of risk.

You might even want to consider getting pre-approval to strengthen your negotiating position when it comes time to make an offer.

Step 8: Managing the property

While some landlords choose to rent their investment properties privately, others choose to engage a property manager to manage their property on their behalf. A property manager will take care of a range of different tasks, like screening potential tenants, collecting rent, conducting inspections and arranging property maintenance. But this level of service and convenience does come with a cost, so it’s important to take management fees into account too.

Buying an investment property is a huge commitment, so it can often be worth chatting with a financial advisor, mortgage broker or even a tax accountant to make sure you’re making the best decision based on your circumstances. From structuring your finances, finding the best home loan and understanding potential tax implications, be sure to seek relevant advice from a professional in the field. And if you’re looking for a competitive interest rate, Unloan can help you out.

‍

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.