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Buying Your First Investment Property

Think you’re ready to invest in property? Don’t jump in just yet.

No matter how eager you are to break into the property market, you shouldn’t dive right in. There are so many traps for the unwary. A simple oversight can catch you off guard and leave you with a bad investment.

Therefore, it pays to be prepared in all aspects of investing, especially around getting a home loan to finance your property investment.

Start strong by understanding your home loan options

When it comes to investing in property, finance is king. It’s simple. You can’t buy the best investment property if you can’t get a home loan to finance it.

So what are your options? Find out what investment loan products are available and learn about the costs before you buy. This way, you can plan and prepare yourself to take the big step.

How can I qualify for an investment loan?

You’re likely to qualify for an investment loan as long as you can meet the following basic requirements:

  • Sufficient deposit: Currently, it’s tougher to borrow more than 80% of the property value than it was in past years. This means you’ll need a 20% deposit in most cases. If you want to borrow more, you may also need to show that you have equity in other properties. Note that there are no deposit investment loan options available if you don’t have a sufficient deposit.
  • Genuine savings: Most lenders may want you to have saved or accumulated a certain amount of cash as deposit in a bank account for at least 3 months. This is to show that you’ve saved the money yourself and you can manage your finances.
  • Clean credit history: Most lenders may want you to have a clean credit history and a good credit rating.
  • Strong income and stable employment: Lenders will generally require you to show that you have a strong income and stable employment. This helps you prove that you can afford the mortgage. However, if you’re a professional investor who earns solely through investment and you don’t have a job, you’ll need to provide your bank statements or tax returns to prove your income.

Our mortgage brokers have many years of experience and know which banks are more flexible with their policies. We can help you create a strong loan application so you can get approved the first time around.

You can speak with one of our mortgage brokers by calling us on 1300 889 743. You can also complete our free online assessment form for a free quote instead.

How much can I borrow?

Your borrowing power depends on the strength of your loan application. Depending on which lender you apply with, you may be able to borrow up to:

  • 85% of the property value: By showing that you have a strong income and stable employment, you may be able to qualify for an 85% investment loan. Lenders will also require you to have a 15% deposit with at least 5% in genuine savings.
  • 90% of the property value: With a big deposit, clean credit history and an easily sellable investment property, you may be able to get a 90% investment loan. Please note that you’ll need to build a strong case with the lender.
  • More than 90%: Only a select few lenders offer 95% investment loans. You’ll need a large deposit, perfect credit history and a good investment portfolio. The investment property must also be a standard property that can be sold easily. Beware that qualifying for this can be quite difficult.

Please note that if you borrow 80% of the property value or less, you won’t have to pay Lenders Mortgage Insurance (LMI). Lenders generally charge LMI if you borrow more than 80% of the property value.

Where can I find the best investment loan rates?

You’ll likely have a hard time comparing investment loan interest rates because lenders don’t usually advertise their best interest rates.

However, we’ve published the best rates from our panel of almost 40 lenders so it’s easier for you to shop around.

You can check out these rates on the investment loan rates page.

What are the costs involved in buying your first investment property?

Buying an investment property is costly. In addition to the purchase price, you also need to factor in the following costs in your budget:

  • Stamp duty: The stamp duty on an investment property can be as high as 6% of the property value. Please note though that this varies between states and territories.
  • Valuation fee: You need to get a professional valuation to make sure you’re not overpaying. This can cost you around $400 to $600 a pop. You also need to get building and pest inspection done, which can cost you $600 to $700. If you’re buying a unit, you also need to get a strate report.
  • Loan fees: If you apply for finance, you may have to pay an application or settlement fee. Some lenders may not charge these while others can charge you as high as $900.
  • Legal fees and conveyancing costs: These costs are payable when you invest in property. However, they can be waived for investors in some cases.
  • Transfer fee: You’ll need to pay a government fee to register your name on the property title. This will remove the vendor’s name and official transfer ownership of the property.
  • Lenders Mortgage Insurance (LMI): LMI can amount to thousands of dollars and is payable when you’re borrowing over 80% of the value of the investment property.

You’ll also have to pay ongoing costs including council rates, water bill, maintenance costs, insurance and agent fees, and home loan repayments.

To get an estimate of all these costs, you can check out our property purchase costs calculator before buying your first investment property.

Buying your first investment property FAQs

What are the tax benefits of investing in property?

One of the most attractive aspects of investing in property here in Australia is the generous tax benefits you can get.

The most popular among these tax perks is negative gearing. You can take advantage of this tax benefit if your investment expenses exceed the rental income and you incur a loss.

This loss is then offset against your other assessable income such as your salary and investment income.

You can also claim a tax deduction for depreciation in value of your investment property or apply for a Tax Withholding Variation through the Australian Taxation Office (ATO) to receive tax breaks each time you receive your salary instead of waiting 12 months.

If your rental income is greater than your expenses, this means you’re positively geared. In this situation you will have to pay tax on the income received.

If your rental income is enough to cover your expenses, then you are neutrally geared. This is an ideal scenario as you won’t need to dip into your pocket to support your investment as you do when you are negatively geared.

Please make sure you understand all this before buying your first investment property.

Should I invest in land?

If you’re thinking of buying your first investment property in the form of a block of land, beware that there are risks and downsides to this strategy.

The biggest among these is the fact that you’re not earning any income from a block of land. Therefore, you’d be supporting this investment out of your own pocket. This could have a serious impact on your cash flow.

It’s also harder to sell a block of land than a property with already a house on it. Even if it’s more affordable to buy, you’ll have a limited market to sell it to.

On the plus side, the entry cost of buying a block of land is a lot lower compared to a house.

If you’re still interested to invest in land, you can learn more from the investing in land page.

How can I prepare myself financially before buying an investment property?

There’s no question. Buying your first investment property can be daunting. Speaking with a mortgage broker is a good way to get clear about how much you can borrow or whether you’re financially ready.

Having a clear understanding about your financial capabilities and responsibilities will help you build a strong foundation. Therefore, take the time to speak to a property-focused accountant or financial advisor before you take the plunge.

Investors often miss out on a great opportunity because of the delay in finance. This is why it’s a good idea to get pre-approved before you even start looking for an investment property. By securing a reliable pre-approval, you can gauge your capacity to borrow and secure an investment loan more easily.

Please speak with a professional financial advisor before buying your first investment property. They can help you find out whether or not you’re ready to take the big step.