A beginner's guide to buying an investment property
Are you looking for a tried-and-tested way to build your wealth? Or are you looking for an income stream that will support you in the future? If so, becoming a property investor may be the right choice for you.
With that being said, investing isn’t always a straightforward process… and there are risks involved. You should always talk to your financial advisor or accountant to ensure you are making the right investment decisions for your circumstances.
Before you start shopping around for investment properties, it is important to learn as much as possible about how it all works. So, how do you buy your first investment property?
Understand investment property loans
Borrowing for an investment property differs from taking on a standard home loan. Before seriously considering investing, you need to learn the types of loans and which will be best for you.
If you have substantial equity from your own home, you can use this towards a loan for your investment property. This is a widespread and clever choice, although you do still need to be able to prove you can afford the repayments.
Investment property loans tend to have a higher interest rate, but they still have upsides. You only have to use one property as security, for instance, instead of the two you would need if refinancing from a cheaper loan. Investment property loans can also provide as much as 90% of the purchase price, meaning you only need a 10% deposit.
Another option is an interest-only loan. This is where you only need to repay the interest. This will make your repayments considerably less over the first few years. Remember, though, that interest-free loans will revert to principal and interest when the term expires.
A mortgage broker is your best port of call to help you understand your borrowing options. We have a number of connections and are happy to make an introduction.
Stay calm and play the long game
Property will make you money, but it is a long process. Buying an investment property starts with an outlay. It can feel daunting and as though you are bleeding money, especially if your purchase is in need of repairs.
Stay calm and see it through. Investing is a long-term game. Let things settle, and in time you will see a profit, which you can potentially use to fund further investments.
Do your research
Investment properties need tenants. Whether it’s residential or commercial, you will need a rental income coming in to help with the costs of the loan.
You need to find out the average rental prices around the area and how high the demand is. The best thing is to have a sit down with your real estate agent so they can help you make an informed decision.
Understand tenant lifestyles
Different areas present very different lifestyles and will dictate the demographic of your potential tenants. It may not be wise to buy a family home, for instance, in an area without a primary school close by. Families will not be looking in the area. Save that home for an investor who intends to redevelop.
Match the property with the most common demographic in the area, and you will have a better chance of finding the right tenants.
Find the right property
Investment properties are bought to be assets. You won't be living there. The purpose of an investment property is to make money for you, so choose with your head.
Just because it’s your dream home doesn’t make it suitable for investment. If you find a home that you love, maybe move into it and turn your current residence into a rental.
Enjoy your investment
If you're thinking of buying an investment property, it's important to do your research, seek professional financial advice, and understand the process. By following the tips in this article and forming strong relationships with your broker and real estate contacts, you'll be well on your way to making a smart purchase that will benefit you in the long run.
Do you have any questions about investing in Mount Gambier? Contact us today – we're happy to help.