This could be the year you start your property investment journey. There are positive trends for those with capital to invest:
- Property prices are falling, making it more affordable to make repayments, even in a current high-interest-rate environment. CoreLogic’s Home Value Index fell 1.1% in December 2022, which took values 5.3% lower over the 2022 calendar year.
- Vacancy rates are falling to record lows, and people are looking for rentals amid limited supply. Property investors can enjoy high rental yields, especially with demand from overseas migrants starting to return to normal.
Even so, how do you know if you’re ready? We’ve outlined six tell-tale signs you could be ready to invest.
6 Signs You’re Ready For An Investment Property
1. You’ve Been Thinking About Your Financial Future
Your financial security and retirement have been on your mind. Relying on superannuation may not be enough. For many Australians, investing in property can help generate wealth close to retirement – especially if you enter the market as soon as you can. If you sit on the fence for too long, you miss the benefits of longer-term investment in the property market.
2. You’re Clear About Your Property Investment Goal
Property investment is a long-term journey, and to ensure you’re on the right path, you must choose the right investment strategy to meet your goals. There are three ways you can make money through property investment:
- Capital growth strategy: You make money by holding onto the property until its value has increased and you sell it for a profit. You might choose this strategy if you want a good long-term investment to help fund your retirement.
- Cashflow strategy: You make money by taking in more rental income than it costs to own the property. You might choose this strategy if your goal is to add a passive income stream to your earnings or to fund purchases of other investments, such as shares.
- Value-adding strategy: You make money by selling the property after increasing its value through renovations. You might choose this strategy.
3. You Have Usable Equity
If you own a home, you can leverage its equity to buy a new investment property. Equity is the current value of your home minus the amount you owe on it. For example, if the current value of your property is $600,000 and you still have $300,000 left to pay, you have $300,000 in equity. Keep in mind, however, that your usable equity will be less than your total equity.
Your lender will take into account a variety of factors to determine your usable equity. You typically get to use 80% of the equity if you get approval for the loan. So from the above example, your usable equity is $240,000. You could refinance and use this $240,000 as a deposit or to cover other costs of buying an investment property.
4. You’ve Built Up Savings
You might be ready if you’ve saved up enough to bear the initial costs of buying an investment property. Besides the deposit, there are other costs associated with buying property. These include stamp duty, pre-settlement inspection fees and conveyancing fees.
If you’re struggling to save a large deposit, there are investment loans where you can borrow 95% of the property value, if you can save at least 5% for a deposit.
5. You Understand The Property Market
You understand the property cycle and know that even if we’re facing a falling market, an upturn will be next after the slump. Most property investors take advantage of the falling market to buy low and enjoy the gains when there’s a boom.
6. You’re Willing To Take On The Challenges
Buying an investment property takes work and dedication. Besides being financially committed, it’s important to be prepared for the potential difficulties of finding a tenant or buying the right property for your investment strategy. You must also be ready to handle situations where your property remains vacant for long periods, or the market is experiencing a downturn.
To successfully navigate such challenges, it’s crucial to have a reliable team of experts by your side. This can include mortgage brokers, accountants, property managers and more. By assembling the right team from the beginning, you increase your chances of gaining positive results by expanding your property portfolio.
We Are Property Investment Loan Experts
If you’re ready to take the first steps into property investment, our team at Home Loan Experts is here to help. Our mortgage brokers, some of whom have personal experience in property investment, will guide you through the process.
We’ll be with you at every step, from getting your investment loan approved to helping you maintain a good cashflow. Call us on 1300 889 743 or enquire for free online today.