Buying An Investment Property

1. Do your sums first. Work out how much you can afford to borrow and how much surplus income you have to support the loan and meet the expenses of holding the property (like rates, body corporate fees, insurance and maintenance).There will be a tax break if you negatively gear, but that’s a bonus.The focus should be on the quality of the investment.
2. Make realistic assumptions. Do your homework thoroughly. What rental will it attract? What capital gain is reasonable? Don’t forget to factor in potential interest rate rises. If you’re going to invest further by renovating the property, make sure you’re not over-investing your time and money.
3. Take independent advice. Many organisations that sell investment property will offer to make the process simple by bundling all the services you need together. Don’t be tempted – use your own trusted professionals. Do your own “due diligence” by asking other real estate agents in the area about the rental market, property sales and likely capital appreciation. Always seek unbiased advice.
4. Remember that property is a long-term investment. Investment in property is usually at least a five-to-ten-year commitment. The property cycle is quite protracted, and after a boom, prices often stagnate for many years. Buy smart and buy for the long term.
5. Consider how best to borrow. There is a huge range of loan facilities available. Choosing between interest-only and principal and interest loans is a key question for you as an investor. An interest-only loan means you minimise your costs and maximise the interest expense for tax deduction purposes. The return on your investment will come from the potential capital gain. Principal and interest loans are more expensive, but like a forced savings plan you gradually increase your equity in the property.