The industry’s top tips for buying an investment property

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Owning an investment property is a popular way to gain financial returns, if it’s done right. In most cases, you’ll need an investor home loan and getting one isn’t as simple as rocking up to the bank. There’s certainly research to be done and steps to be taken before applying for a mortgage.

In this post, we share our top tips for buying an investment property and what you’ll need to know before securing an investor loan.

The benefits of buying an investment property

Stashing your cash under your mattress may be one way to save your money but it’s not going to multiply on its own.

Buying real estate is considered a stable investment, one that can make you money, lots of it if you do your homework first. And if your investment property is tenanted when purchased, you won’t have to wait long to see an increase in your cash flow.

At tax time, property investment expenses can be offset and owning property can look favourable in your income portfolio. When it’s time to sell, profits may be significant.

What you need to consider before purchasing

Before buying real estate, there are several things to consider. Here are the top things to look for:

  • Whether there is growth and high demand in the area.
  • Research the rental market. Will the weekly rent offset your mortgage repayments?
  • Be sure to have the premise inspected by professionals: building inspection, pest control and pre-settlement checks.
  • Know and understand the risks involved.
  • Investing in property is a medium to long term investment so be sure you can afford to maintain a mortgage if the rental market crashes in your chosen area.
  • Choose the right mortgage. If you can’t wrap your head around the business end of investor home loans, consult with a lending specialist.

Types of investor home loans

All investors are different and come with different needs. Luckily, there are a variety of investor home loans to cater for (almost) everyone.

  • Interest-only loans are favoured amongst investors because repayments are based on the interest amount only, not the principal. They are available for a maximum of 5 years.
  • Fixed loans mean the interest rate is fixed for a certain number of years and repayments are made based on this fixed percentage. These are available for 1 to 5 years with the option to switch to a variable loan at the end of the fixed term.
  • Variable loans are when your interest rate fluctuates with the cash interest rate as set by the Reserve Bank of Australia. This means your mortgage repayments can increase, or decrease, at any given time over the life of your loan agreement.
  • Split loans offer the best of both worlds with the opportunity to combine your investor home loan with fixed and variable rates.

How to calculate borrowing power

Before applying for a loan, you’ll need to know your borrowing power, which is the term used for the amount you are likely to be loaned.

Knowing what your borrowing power is will help you determine which markets you can buy in and what amounts you’ll need to cap your offers at. To determine how much you may be able to borrow, you’ll need to know your current income and expenses.

Mortgage House offers a handy online tool that will help calculate your borrowing power.

Mortgage House is an award-winning lender and have been helping Australians achieve their real estate dreams since 1986. If you’re interested in applying for an investor home loan and need help with the finer details, the skilled and experienced team at Mortgage House can help.