Things to look out for before investing in property

Learn more about investing in Australian real estate & share your ideas with other investors.
Post Reply
gump
Posts: 10
Joined: Mon Mar 16, 2015 6:25 pm

Things to look out for before investing in property

Post by gump »

Hello home loan experts,

I’m actually planning to start my own investment portfolio soon but I don’t know much about investing in property. My original plan was to buy a residential property to live in, however, because of several reasons, I wasn’t able to afford the property I wanted to buy.

I came across your forum while I was surfing the web to learn about investment loans. I’m hoping someone here can help me out.

My question is, what should I look out for before I invest?

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Things to look out for before investing in property

Post by Otto Dargan »

Hi and welcome to the forums gump,

Investing in a property usually requires a lot of research, especially when you’re weighing up the potential return on the investment over a shorter period of time compared to the typical term of a mortgage. Good research can help you remove yourself from the equation when calculating the costs of buying and living in an area.

This may be important to avoid your personal preference from clouding your decision making. It may be best to avoid areas with poor infrastructure or high crime rates, however, going interstate or at least buying an investment property on the outskirts of the metro area may be a good start for your investment portfolio.

House prices in major cities are through the roof at the moment. Therefore, people who rent generally prefer to live in outside of major cities. Many first home buyers have even started buying investment property first before buying a house to live in.

Despite this, it’s important to note the new policy changes to investment loans which may eventually be a challenge for first home buyers, such as yourself. It’s recommended that you move quickly if you’re looking to apply for an investment loan.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

gump
Posts: 10
Joined: Mon Mar 16, 2015 6:25 pm

Re: Things to look out for before investing in property

Post by gump »

Hello Otto,

Thank you so much for your response. I couldn’t agree more that property prices are near unaffordable right now (one of the reasons I couldn’t buy a home first). I wasn’t aware about the investment loan policy changes though. I’d like to know more about these changes.

More specifically, how are they affecting the property market?

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Things to look out for before investing in property

Post by Otto Dargan »

Hi gump,

The Australian Prudential Regulation Authority (APRA), the regulators of the banking industry, introduced a few new requirements earlier this year for APRA-regulated institutions, including the four major lenders.

According to this new policy change, all APRA-regulated lending institutions are required to cap their annual growth of investment lending to 10% of their total loan book.

For example, if a lender has a total loan book of $1,000,000 then they cannot lend more than $10,000 for investment loans. Most lenders may have since started tightening their policies to make it more difficult for property investors to get a loan.

These changes to policy include:
  • High interest rates - Some lenders have already started increasing interest rate on investment loans.
  • A larger deposit requirement - Other lenders have pulled back on 95% loans to 80% LVR (Loan to Value Ratio). Fortunately, you may be able to find a handful of lenders who still offer 95% LVR loans.
  • Lower borrowing capacity - Several lenders have switched the way they assess your borrowing power. For example, St George has increased their assessment rate, and AMP has decreased the amount of rent they will consider.
Please keep in mind that these rules are only applicable for lenders that are regulated by APRA, which means that you may be able to find specialist lenders that still offer high LVR investment loans.

To learn more about applying for an investment loan, you can check out our website. You can also call us on 1300 889 743 or fill in our free assessment form and one of our mortgage brokers will help you apply for the right investment loan.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

gump
Posts: 10
Joined: Mon Mar 16, 2015 6:25 pm

Re: Things to look out for before investing in property

Post by gump »

That sounds great. I’ll give your office a call tomorrow to learn about the services you offer. I’m really looking forward to speaking with one of your brokers about my situation. I’m really grateful for your help, mate. Have a good day.

astral_projection
Posts: 7
Joined: Tue Mar 17, 2015 7:29 pm

Re: Things to look out for before investing in property

Post by astral_projection »

Hey everyone,

I’m also looking to invest in my first property. I want to buy a property in one of the major cities because I think they’ll generate some good returns. However, I’m starting to reconsider after learning about the new changes to policy. I’m not sure if I should go for a property to live in or invest.

How is the current property market? Suggestions on what I should be doing now will be much appreciated. Thanks.

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Things to look out for before investing in property

Post by Otto Dargan »

Hi astral_projection,

If you’re planning to buy property in one of the big cities then you may want to consider buying a property outside of the main city, because property prices are near impossible for average earning individuals to afford at the moment.

Sydney’s median house price, according to Domain’s June quarter report showed that the average property price in Sydney has crossed over the $1 million mark.

If you can afford the costs then you should buy the home you want. If you can’t then it may be a good idea to at least get your foot into the property market first. To do this, you may want to consider:
  • Buying something much smaller or going interstate: This may help you generate income to help you fund your home purchase down the track.
  • Buying a couple of investment properties: This may be useful to match the price of the house you want to buy.
  • Renting where you want to live: Having two or three investments for a few years may be a good stepping stone for you to buy a property.
  • Selling the property later: You may consider increasing your investment portfolio further or selling your investment to save for your new purchase.
It is important to note that having an investment debt can do a lot more than having residential debt.

For example, Having a $1 million investment debt may be more beneficial for you compared to $1 million in residential debt, considering the tax deductions you may be able to claim which includes negative gearing and asset depreciation. Such benefits aren’t provided for residential debt.

You can visit our website or call us directly to discuss your situation in more detail.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

astral_projection
Posts: 7
Joined: Tue Mar 17, 2015 7:29 pm

Re: Things to look out for before investing in property

Post by astral_projection »

Hey Otto. I think I’ll take sometime to study your website and I’ll give you a call sometime next week to further discuss my situation. I really appreciate your time and the info you provided. Speak with you soon.

Post Reply