The recent dip in Sydney’s property market has left many people wondering if it’s a good time to get their first foot on the property investment ladder.
If you haven’t purchased an investment property before, here are some key things to consider.
Know what your investment goals are
Are you in it for short term gains, long term capital growth or income?
Some would-be investors like the idea of buying a property that they can ‘flip’ – that is, renovate to add value and then re-sell for a higher price and pocket the earnings. If this is your goal, you need to be sure that you have the practical skills, know-how, tradespeople connections, time, and cash to make it work.
On the other hand, many investors believe it is safer to think about property as a long-term investment, so you have time to weather any short-term falls in the market. As the market moves in cycles, this can require planning and patience.
Or are you in it for the income? In which case you’d be looking for big yields.
Do the maths
Are you financially ready to invest?
Make a list of all of your income sources and expenses, as well as your assets. If you have a home already, you may have equity that you can use toward a deposit on your investment property. Typically, a bank will loan you up to 80% of your property’s equity. So, let’s say your home is worth $800,000 and you owe $300,000 on your mortgage. You could potentially borrow 80% of the $500,000 equity or $400,000. You’ll likely need a minimum of 20% of the total property value for a deposit to avoid paying Lenders Mortgage Insurance (LMI), which can cost thousands of dollars.
Be sure you understand all of the costs of buying an investment property beyond the purchase price, including stamp duty and Capital Gains Tax (CGT). You can find more information through Revenue NSW. You’ll need a solid budget in place, so that you know you can cover the costs of ownership above and beyond your rental income. Learn about negative gearing and how it will affect you.
Getting a loan
How will you finance your investment property?
Top things to look for in a loan include a competitive interest rate, low fees, and features such as offset accounts, the ability to make extra repayments, and a redraw facility. By reducing your monthly repayments and interest you’ll reach your investment goals faster.
Next, you’ll want to apply for pre-approval from your chosen lender. You can do this directly through a lender but it’s a good idea to go through a mortgage broker who can guide you through the process and offer advice. Pre-approval is a formal indication from a lender that they will lend you a certain amount of money, which gives you a guide as to what you can spend, although neither you or the lender are obligated to follow through with the loan at this stage. Resist the temptation to apply for multiple pre-approvals, however, as this can negatively affect your credit rating, which may reduce your chance of being approved for a loan.
Have a safety net
With any big investment, you always need a plan B.
Make sure that you have steady income and a good chunk of cash stashed in the bank in case of emergencies before you take the leap into property investment. For example, what if the strata building you have bought into suddenly requires upgrades that involve special levies (fees) to cover them or if your unit is untenanted for a period of time? Be sure that you can cope with such unforeseen expenses.
Do your homework
Research is everything.
Before you leap into the market, take the time to educate yourself about the property market. Being across the latest property market news, investment insights and current trends will help you make an informed investment choice. We strongly advise steering clear of any get-rich-quick property schemes such as property seminars that offer high returns on low investments. If it sounds too good to be true it probably is.
Find the right property
It’s important to remember your target market or renter when choosing an investment property.
This may sound like a no-brainer but too many people get caught up in the search for a bargain and forget to consider the key fundamentals of property investment. Namely, you want a property that is central (close to the city ideally), and well-connected to public transport, infrastructure and local amenities. These factors ensure that your property will be appealing to prospective tenants and easy to let out for a good rental return, as well as resell for strong capital gains when you’re ready.
Doing your research on areas that tick the right boxes will immediately narrow down your search. Match that to your pre-approved budget and you’re ready to start shopping around! You may be pleasantly surprised at what you can afford to buy in Sydney’s inner-city right now.
Looking for an affordable investment property in Sydney’s inner-city?
Get in touch with me today to find an investment property to suit your needs.