Your objectives determine the best property to buy
There are many different types of Australian properties. However, there is no single property that can be classified as the most suitable property to buy in Australia.
That’s because your objectives and goals determine which property type is a better buy for you.
Each Australian property offers different benefits and come with varying drawbacks or considerations. Before you set your eyes on any single property, make sure it can work accordingly with your goals.
What are you aiming for?
- Moving in: If you’re planning on moving into a new property, you’ll need to consider all aspects that can affect you when living in the property. For example, you may want to reconsider buying a house near a dump site even if it’s quite cheap. You may end up selling the property within a month for less than you bought it for.
- Investment: A smaller apartment complex in the heart of a big city may be a better buy than a larger one in the outer parts of a suburb even if their prices were the same. It’s because big city apartments usually have a consistent and high rental yield. However, it is your research and goals that should decide which one you buy.
- Business: People generally lease a property if they want to use it as their business premises. A relatively older property that can be leased may easily be a better option than a newer one that needs to be purchased. This is especially the case if your business is just starting or is strapped for cash.
- Holding or construction: If you’re buying vacant land to hold or for construction, it would most likely be better if the land was in a growing suburb or close to a big city. Land in rural areas may be cheaper but most lenders may not accept it and even if you buy with cash, it may be a subpar investment.
- Holiday home: An oceanfront property or a heritage listed property can be an excellent holiday home, with the option to rent it out when you’re not living in it. On the other hand, you may not want to move into a busy apartment in the middle of the city when holidaying and rather use it as an investment property.
The lenders still need to accept your property
It doesn’t matter what you’re buying if you’re buying with cash. However, if you’re taking out a home loan then you’ll need to make sure the lenders accept the property so you can secure the finance.
Lenders will likely accept your security property as long as it meets standard bank policy:
- Demand: The marketability of the property is a major factor that the banks consider when lending. Generally, banks lend to easily saleable properties with a high demand. This mostly includes standard homes in easily accessible areas. Banks can accept unusual or specialised properties as well but will need you to meet stricter lending requirements such as paying higher Lenders Mortgage Insurance (LMI).
- Size: Banks prefer lending to properties that cover at least 50m² in living area excluding balconies and car space. However, a select few lenders may accept smaller-sized properties.
- Condition: Lenders require the properties to be structurally sound. If there have been recent renos to fix major issues but they are only for show then that may pose a problem. This is because structural issues are expensive to fix and the bank doesn’t want to risk you being unable to repay the loan because of this. If you’re planning on rebuilding or renovating, you may be able to convince the bank to go along with it if you can afford the mortgage.
- Accessibility: Your property must be connected to the power grid, have direct vehicle access and be in an acceptable postcode location. If your property is in the middle of nowhere or has no access to basic amenities, it may be quite difficult to secure finance to buy it.
- Valuation: Although not always a deal breaker, banks consider the actual value of the property to determine whether or not to lend. Banks may require a valuation of the property when you apply for a mortgage. This valuation determines your borrowing power so if you’ve applied for a larger Loan to Value Ratio (LVR), your loan application may be declined if you can’t come up with a bigger deposit.
We specialise in mortgages for various property types!
Our mortgage brokers have experience working for various banks as well as non-bank lenders. We know exactly which banks will accept your security property especially if it’s unique or specialised.
We can also order free upfront property valuations with several of our lenders before you even apply!
You can speak with one of our mortgage brokers by calling us on 1300 889 743 or you can complete our free assessment form and we will contact you within 24 hours.
Finding the most suitable property to buy for your situation
Your particular situation as well as your goals factor into what suits you and what doesn’t.
If you’re confused as to what property to buy, consider these three factors:
- The best benefit
- Major consideration(s)
- Property lifecycle
How can I use this?
Suppose you’re a first home buyer planning on buying a house in NSW.
The best benefit to buying a normal house would be waived stamp duty, saving you up to $20,000.
You can also qualify for the First Home Owners Grant (FHOG), which can range from $10,000 to as high as around $25,000 depending on the state you’re buying in.
A major consideration may be the property location and capital growth rate of the area. The property lifecycle is the combination of the acquisition, holding and exit phase of owning a property.
You can generally acquire a standard home and reach settlement in 30, 60 or 90 days. You’d hold the property for as long as you’d live in it and the exit phase would be you transferring the property to your children, spouse or selling it to a third party.
If you were to buy an investment property instead, you’d have to pay stamp duty and wouldn’t qualify for the FHOG. However, it may be a great investment opportunity that can kickstart your investment portfolio.
Property, as well as market risk, may be the major consideration in this case.
The acquisition phase may be similar to buying an owner-occupied property but the phase will be vastly different.
Property prices can fluctuate and there may be no tenants for a long time depending on the vacancy rates for the area. This can leave you in a bad financial position but you can take advantage of negative gearing.
The exit phase ends with you selling the investment property, preferably at a higher price.
Using these three assessments, you can compare and get an idea of what may be a more suitable property for you to buy.
Please note that the above must not be taken as financial advice. It’s recommended that you speak with a professional financial advisor and/or your accountant before you move on to buy property.