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11 questions to ask before buying your first investment property

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If you are looking to buy your very first investment property, there are many things you might like to consider. Here are 11 questions to ask before purchasing your first investment property:

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1. How do I find the right loan?

The home loan you choose will likely be one of the biggest, most important decisions you make during your investment process. With there being so many home loan options out there, it is a good idea to do your research and find the one that works for you the best.

To work out whether a loan suits you, look beyond just the interest rate. A low interest rate may be great, but it doesn’t have to be the deciding factor.

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It’s a good idea to look at comparison rates to get a more accurate idea of how much you’ll pay. Comparison rates take into account any additional fees that may be incurred with certain loans such as establishment fees and annual fees.

So, while a loan could have a low interest rate, it could have high fees indicated by its comparison rate. This might not make it such a great deal.

Choosing between a fixed or variable interest rate

Also look into fixed interest rate loans versus variable ones. A fixed rate loan will lock you into an interest rate for a period of 1-5 years meaning that during this time, your interest rate remains stable. A fixed rate means that you can budget more easily, but also means that if the cash rate drops, you might be locked into a higher interest rate.

A variable interest rate is dependent on the Reserve Bank of Australia’s (RBA) cash rate and fluctuates in accordance. While the cash rate is low, variable rates will benefit from this. They are also the more flexible option as leaving a fixed rate loan within the fixed interest period will likely incur break costs.

Know your loan repayment options

Another thing to consider is home loan repayment methods. Most borrowers will repay both the principal (remaining home loan amount) and the interest charged on their loan. However, most lenders will give you the option to just repay the interest for a fixed period.

Just paying the interest can reduce your monthly repayments, making it easier to manage your funds during the interest-only period. However, once this period is over you’ll have to make repayments on both the principal and interest. This can be a big adjustment and will also ultimately mean you pay more interest over the duration of your home loan.

However, interest-only repayments may be attractive to property investors as interest is usually tax-deductible for investment properties and lower payments make it easier to manage their property if the rental income is low initially.

Lendi’s home loan comparison tool uses smart technology to create a shortlist of loans that could be suitable for you. Having a shortlist of potential loans can really cut out much of the hard work and ensure that you can easily compare loans to find the right one for you.

If you have any questions, feel free to get in touch with Lendi’s Home Loan Specialists for some free expert advice.

2. Can I afford this property?

You don’t want to put yourself at financial risk just to buy an investment property. Be realistic about what you can afford to buy so that you live and buy within your means.

Most buyers aim to save a deposit of at least 20% of the property value in order to avoid paying LMI fees. This can be a very substantial chunk of money, whether you’re buying in an expensive capital city or a small rural town.

If you aren’t able to save up a deposit that big, some lenders offer loans covering up to 95% of the property purchase price. While this can grant you access to the property market sooner, you will likely be required to pay Lenders Mortgage Insurance (LMI) which can be very expensive. You'll need to weigh up your options and you may decide to hold off buying a property until you have a larger deposit.

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Using a guarantor

Alternatively, you may be able to get a loan with a smaller deposit by using a guarantor. A guarantor will usually be a close family member (e.g. parent) who agree to use part of their equity to secure a home for the borrower.

Guarantor home loans are free of LMI costs and don’t require the guarantor to pay anything upfront. However, if the borrower defaults on their loan repayments, the guarantor might be liable to pay the guaranteed part of the loan.

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Owning a property also has many ongoing costs, such as insurance, maintenance, tax and potentially renovations. Being aware of all these costs will better prepare you as an investor.

3. Is the location a smart choice?


It can be tempting to want to invest in an area that you are familiar with. It will often be the area you live in, but it won’t always be a smart choice. One way to avoid having to save for a large deposit is to consider less expensive locations that might be further from where you live.

The benefit of investing in an area you are familiar with is that you know what to expect. If you are less familiar with an area, try to spend some time there at different parts of the day to figure out if it’ll work for you.

For example, an area could get quite loud in the evenings, but if you’re only visiting in the earlier part of the day you wouldn’t know this. It’s also wise to speak to neighbours about what they like and don’t like about the area.

But just because an area is affordable, doesn’t make it a good investment choice. Look at the rental yield of the area and work out whether you’ll be getting much of a return on your investment.

Consider high-growth, in-demand areas in the process of gentrifying.

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4. Are there plans for further infrastructure or development in the area?

Infrastructure and development usually bring growth to an area and can make your investment property more desirable. For example, good public transport will usually boost the value of an area and a new school could attract long-term family tenants.

However, development doesn’t always have such a positive impact. If your investment property is right next to a loud construction site, it may put off potential tenants and require you to reduce the rent price.

5. How can I make this property attractive to renters?

Marketing your property in a way that attracts the right kind of tenants is vital. If your property is located in an area with a higher vacancy rate, you need to stand out in order to find suitable tenants and charge a decent rent.

Either take high quality, well-composed photographs yourself, or hire a photographer to take them for the listing. And don’t underestimate the power of a well-written property description.

If you really want to set yourself apart, consider offering an additional feature, such as making the property pet-friendly.

Also work out who your target market is and curate your property appropriately. If you think your property would suit young families, the inclusion of fences and other safety features could be very attractive.

Don’t forget to read up on the rights and responsibilities you have as a landlord in your state or territory!

6. Do I need property management?

Being a landlord can be a lot of work and unviable for those living far from their investment properties. You can hire a property manager who will do all the hard work for you and take care of your rental issues so you can relax.

They can help you find and review prospective tenants, collect rent and organise any repairs necessary. Property management fees vary and may be a fixed fee of $100 per month or a percentage of your rental income.

7. Will this property be positively or negatively geared?

Most property investors will want their property to generate a positive cash flow. When the rental income from your investment property is greater than your interest and property expenses it is positively geared.

A negatively geared property is the opposite in that your expenses are more than the rental income. While an investment loss is not ideal, it does reduce your taxable income meaning you could save significantly. Negatively geared investments can still earn you a large profit by way of an increase in its value with time

On the other hand, you will likely have to pay tax on the additional income from a positively geared property but you will earn a profit if your rental income is higher than your expenses on the property.

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8. Why hire a property inspector?


It is a very good idea to have a property inspection done when you want to buy a property. A building inspector will look at various parts of the interior and exterior to check for things like structural and foundational issues, asbestos, mould, functioning plumbing and electricity, loose tiles on the roof and cracks in walls.

You could also hire a pest inspector to find out if there are any pests causing damage to the property.

Having a property inspected can make you aware of potential problems and avoid very expensive repairs further down the track.

9. Do I have the funds to do necessary renovations?

A slightly dated, or completely deteriorated property can go for much cheaper than its updated neighbour. However, you will have trouble renting out these kinds of properties meaning that renovation will likely be necessary.

If you don’t have the funds or time to take on a fixer-upper, it may be better to look for a move-in ready home. Renovation usually ends up being more expensive than expected and may also take a long time to complete.

It’s not just building costs you have to consider, but potentially also architect costs, project management, engineering and design costs.

10. Should I make my property a holiday rental?

More frequently, tourists, travellers and those on business trips are opting to stay in holiday homes instead of hotels and more traditional forms of accommodation.

Using platforms like Airbnb, Stayz and Homeaway, you can list your property as a short-term holiday rental and potentially earn even more than you would with regular tenants. While you are able to charge more, your income could be less consistent.

There are also fewer tax benefits that you can find out about on ATO’s page on holiday homes.

Short term rentals are rented for periods of up to 3 months and have restrictions in certain areas. In Sydney, for example, for short-term rental properties where the host is not present, the property can only be let out for 180 days per year.


11. What are my future investment goals?

Having a clear idea of what your long-term investment goals are is an important thing to think about before investing.

If you intend to sell your investment property fairly quickly in the hopes of making a good return, you need to buy wisely. This style of investment relies on the assumption that the property’s value will increase and will in turn increase the investor’s equity.

For this to be successful, it is a good idea to invest in a high-growth, in-demand suburb. Gentrifying suburbs and suburbs with high occupancy rates are more likely to be highly in demand and sell for higher prices.

If you’d like to later expand your property portfolio, you might consider trying to aggressively increase your equity and use it for a new loan deposit.

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Buying your first investment property is an exciting and often overwhelming experience. If you need some help, Lendi might be able to help answer your questions and find a home loan that’s right for you.

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here.

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

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Tags: investment property, investment, investment return, interest, interest rate, borrowing power, lmi (lenders mortgage insurance), gross rental yield, rent purchase, negative gearing, new purchase, first home buyer, investing

Check today's low rates

Tell us what you are looking for and see if you can save.

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Check today's low rates

Tell us what you are looking for and see if you can save.

Search rates
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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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