Jul 09, 2021
5 Signs you’re Ready to Buy an Investment Property
Investing in real estate is one of the best ways to build wealth, with more and more Australians taking this exciting step towards their future.
Although real estate investments can be very successful and profitable, if mismanaged the consequences can be financially devastating. If you want to set yourself up for success, you’ll need to do plenty of research first and make sure you’re thoroughly informed on the subject.
If you’re wondering whether you’re ready to begin your property investment journey, here’s what you need to know before you go any further.
- You have equity
Homeowners can often use their existing equity from their primary residence to help secure a loan or even cover their deposit. This means that you may not need to worry about saving up for a deposit as you may have had to for your primary residence.
Equity is the value of your home, minus the amount you still owe on it. So if your home is valued at $800,000 and you still have $500,000 left to pay, that means you have $300,000 in equity.
Your bank will take into account a variety of factors when determining whether to grant you access to your equity, such as any other debts you may have, your income, your age, and the number of children you have.
If you do get approved, generally you’ll be able to access 80% of the value of your home, minus what you owe. So using the example above, you’ll be able to put up to $140,000 of your equity towards an investment property.
This can be risky, as you are essentially using your current home as security for your investment property. This means that if things were to go pear-shaped, both houses would be on the line. Make sure you’re aware of the risks and discuss your options in-depth with a professional before making any decisions.
- You’ve built up your savings
Even if you’re able to put your equity towards the deposit for your investment property, don’t let that fool you into thinking you can get into property investment without any savings.
Just like with your primary residence, your property purchase will come with a variety of costs such as stamp duty, legal fees, building and pest inspections, and conveyancing fees.
At least at the beginning of your investment, your rental income may not cover your mortgage fees either, let alone the cost of maintenance. Owning an investment property costs money, and you need to have the savings to keep up with these costs on top of your regular living expenses.
- You have clear investment goals
Investing in the real estate market is a big step to take, and before doing so you’ll want to have a clear understanding of what your goals are.
There are many different strategies you can use when investing in property, and you’ll need to figure out what works best for you. Whether you want to buy an investment home to flip and sell it for a profit or keep the property in your portfolio for the long-term and rent out, there are risks and benefits of each approach.
Your investment goals will help you make this decision, and it all comes down to how fast you want to see results and how much time and money you can commit to the project.
- You’re serious about planning for your retirement
The amount of money needed to retire comfortably in Australia continues to rise. Relying on your super alone just simply isn’t enough for many people, and buying an investment property is a great way to generate wealth as you get closer to retirement.
If you have a self-managed super fund, you’ll be able to exercise complete control over your super and how you invest with it. This is becoming an increasingly popular option for those who are serious about investing and confident in their ability to manage their finances.
- You’ve consulted with the professionals
To be successful as an investor, you’ll need to work with a competent team of experts spanning real estate, home repairs, maintenance, financial planning and even cleaning services.
Working with qualified professionals will help take some of the pressure off and provide you with the guidance and support you’ll need as a first-time property investor.
Although it may be tempting to save some money and take on more responsibility yourself, there’s a good chance you’ll regret it later. You could end up making a costly mistake that far outweighs the price of working with a trusted professional from the get-go.
If you meet these criteria, chances are you’re ready to purchase your first investment property. It’s a lot of responsibility, but with hard work and some luck, you’ll generate a considerable amount of wealth and be on your way to building an impressive investment portfolio.