How to get started in property investing

Can you afford to service the mortgage on an investment property? Making mortgage repayments can be a challenge at the best of times, but investing in property can be especially challenging if you’re already paying off a home loan as an owner occupier.

To get started, tally up your current monthly income, and subtract your current monthly expenses. The result can give you an idea of how much money you may have available per month to put towards a long-term investment such as a property. Keep in mind that a lender may have its own idea of how much you can afford to borrow for a home loan.

You may also receive rental income from your investment property, but this may not always be reliable, as there may be times when the property goes untenanted. Plus, you may need to consider the future cost of maintaining your investment property, including any necessary renovations, repairs, insurance, council rates and property management fees.

If you expect you’ll make a loss from your investment property, this negative gearing could affect your taxes. Consider contacting a financial adviser and/or a tax accountant before pursuing this strategy, as it comes with its fair share of risks.

Do you want your investment property to earn you extra income from the rent, or are you mostly interested in achieving maximum capital gains? Is the property part of your retirement plan, or is it intended to help you reach a 5-year or 10-year financial goal?

Having clear goals can help you determine your investment strategy. It can also help guide you when making related decisions, such as how much to invest in renovations to potentially increase your rental return. Remember, spending too much on renovations could put you at risk of overcapitalising, especially if you’re thinking of funding your renovations with equity in the property.

Before you buy an investment property, consider researching the rents and vacancy rates in different suburbs. As the old saying goes, “location, location, location.” Additionally, there are certain areas or streets within each suburb that may command higher rents and capital gains down the track. Don’t just look at properties on main roads, but also on secondary streets, and consider factors like trees, views, and proximity to amenities to tick both the rental and capital gains boxes.

If you plan on buying more than one investment property, you may also want to look at investing in different areas to help diversify your portfolio and minimise risk, especially if you’re investing in an area prone to natural disasters like bushfires or floods.

Some property investors manage their own properties, but this can be time-consuming and risky. You’ll need to market the property, find and select tenants, manage rents and accounting, stay up to date with tenancy laws, and much more.

Engaging a rental agent could help to save hassle and provide peace of mind, but they’ll also take a cut of your investment property’s rental income. Consider whether the time and hassle saved may be worth the costs involved.

Property investment can be like owning a business, so you should be prepared to experience both good times and bad. There may be times when you have good tenants in the property and enjoy positive yields, and there may be times when your property sits untenanted for length periods, while you spend more than you budgeted for on maintenance.

Having a cash reserve to fall back on in tough times could help you hang onto your property, attend to any unexpected repairs, or even hold out for a more suitable tenant.

Even if you don’t have a savings account or term deposit full of cash available, you may be able to access money in an emergency if your mortgage has a redraw facility. This lets you withdraw any extra repayments you’ve previously made from the loan, giving you access to cash when you need it. Keep in mind that redrawing money from your mortgage means these extra repayments will no longer be helping to lower your interest charges.

Which home loan features will be of most benefit to your investment strategy? Take the time to research and compare different home loan options.

Some popular features of investment home loans include:

• interest-only repayments
• fixed interest rates
• extra repayments
• redraw facilities
• offset accounts

Investors may be able to consider a fixed interest rate, a variable rate, or a mixture of the two, depending on what you want from your investment. While investor loans are often more flexible than loans for owner occupiers, they also often charge slightly higher interest rates and/or fees.

It’s important to compare home loans for investors before you apply, and consider the interest rates, fees, features and benefits to find the mortgage deal that best suits your financial situation and investment goals.