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How to Buy Investment Property

Investing in property is a great way to secure your financial future. The right real estate investment can be a stable, tangible asset that offers secure returns and some generous tax benefits. While no specialist knowledge is required, learning how to buy investment property can be challenging for the first-time investor.

At Kruse Financial, we aim to make property investing easy for everyday Australians. So to help, we’re going to outline a number of factors you need to think about when considering how to buy investment property.

What are your investment goals?

Investing in property will look very different for different people. If you’re looking at how to buy your first investment property, your specific circumstances and your particular investment goals will to a large extent shape your investment strategy. So before you get started it’s important to have a think about your goals. For example, are you investing for capital growth, rental income, tax benefits or leverage? How long do you plan on holding on to the investment? What are your equity goals? What is your attitude regarding risk?

Do you want to build a multi-property portfolio or just buy one property? A strategy for how to buy multiple properties will look very different from a one-off investment strategy.

Having a general idea of what you want to achieve with your investments will help you to shape a strategy best suited to achieving those goals. Sitting down with a mortgage broker or financial advisor during the early stages of your investment planning will help you to lay out these goals and create a strategy that will help you reach them.

Organise your finances

Investing in real estate isn’t cheap. The financial barriers to entry can be high so you need to be organised. The first step is to work out what you can comfortably afford without exposing yourself to too much risk. It’s important to factor in a buffer against periods of vacancy and shifts in interest rates.

You should also have a think about how much deposit you need for an investment property. The bigger the deposit you can put down, the better position you will be in when negotiating a loan. If you already own a property, you may be able to buy a second property with no deposit. We recommend talking to a financial advisor to find out how to use equity to buy investment property.

Again, talking to a mortgage broker or financial planner will give you a sense of how much you can afford to borrow and advise on the best loan structure for your investment. This is especially important if you're working out how to invest in real estate/property with little money.

The amount of debt you have can be a significant factor that can limit the size of your loan or the ease with which you can get the loan. Where possible it’s always advisable to reduce your debt as much as possible and lower your credit card limits.

It’s also helpful getting loan pre-approval as early as possible. Pre-approval indicates that a lender is prepared to lend you a specific amount of money and will streamline the formal loan process when you are ready to buy.

You should also be aware of the additional costs associated with purchasing a property such as stamp duty, conveyancing and legal costs and pest and building inspections and reports.

Do your research

While investing in real estate doesn’t require any specific specialist knowledge, working out how to invest in real estate can be tricky for the first-time investor. There can be a pretty steep learning curve and a lot of different factors that require serious consideration before taking the dive. Before you get started it’s worth spending some serious time doing your research to ensure you’re prepared and ready to make the most informed decisions.

  • What to buy

    Look into the different asset options available. For example, if you’re thinking about investing in rental properties, you should find out whether an apartment, townhouse or detached house is best suited to your budget and investment strategy. You could also look into investing in commercial property or do some research around how to invest in land. Different types of property may be more or less suited to your investment strategy, so understanding the pros and cons will help you discount a few options that aren’t right for you.
  • Where to buy

    Doing some research into where to invest is also vital. Different suburbs and towns will have very different demographics, growth potential, rental demand, cost profiles and more. When considering an area to invest in, it’s important that you do some research into historical growth figures, local employment drivers, unemployment rates, vacancy rates, yield and population growth, to name a few. Investing in a trendy or cool location may not always deliver the best returns.
  • Understand the financials

    Given the high costs to enter into the investment market, doing some serious research into the financial side of things is essential. You should ensure you have a thorough understanding of factors like rental yield, capital growth, negative gearing, tax implications, the different loan and financing options and any other important financial considerations.

It’s also worth considering the additional costs associated with owning an investment property. Ideally, the rental income will cover the loan repayments. However, there are a range of additional costs to consider including property management, council rates, land tax, insurance, body corporate or strata fees and repair and maintenance costs.

Talk to the professionals

While the internet will be an invaluable resource for the early stages of your research, don’t forget to talk to the experts like real estate agents, and independent mortgage brokers and financial advisors as they can provide expert industry insights and help guide you through the process.

At Kruse Financial, we offer expert property investment courses and programs designed to help guide you through the research process and get you ready to buy.

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