Is property investment right for you?

What to consider before buying an investment property.

Bricks and mortar has traditionally been many Australians’ first choice when it comes to investing but, with property prices rising considerably, owning property may not be as desirable as it once was.  

Here’s what you should consider before purchasing an investment property.

Why buy?

It’s important to consider the reasons why you want to buy an investment property. 

It could be something you’ve always wanted to do, a strategy to save on tax, a place to relocate to in future, or to rent out to family members. 

Whatever the reason, knowing and understanding why you’re buying is the first step to ensuring you’re making a good financial decision. 

If property is your first investment, consider whether you’re putting all your eggs in one basket by investing your money in the one asset. After all, if an emergency arises you can’t just sell off the garage to recoup money and selling property can be timely and costly.  

Where to buy

We’ve all heard the saying “location, location, location”, and this still rings true. 

Where you buy, and in what market, will help determine whether the purchase is profitable and the type of tenants you may attract.  

The area you choose needs to see some growth opportunities or increase in value over time to ensure a profit when you sell.  

Take time to research the area, rental returns and weigh that up against the outcome that you’re looking for.

The risks

As with any investment, there are risks you need to consider:

  • The rent earned from tenants may not cover your loan repayments and expenses.
  • Tenants may also damage your property which can cost you to repair.
  • If the value of your property goes down, you may end up owing more than it’s worth.
  • An interest rate rise will mean higher repayments and less disposable income.
  • If your property is vacant, you’ll have to cover the costs yourself.
  • It can take time to sell your property, so you may not be able to access funds quickly in an emergency.

Costs of property investment

Buying, managing and selling an investment property can be costly. 

Buying costs
It’s important to understand the extras costs involved in purchasing property:

  • Lenders Mortgage Insurance (LMI) may be payable when you may not have the required deposit to contribute towards the loan.
  • Lending fees.
  • Moving costs.
  • Stamp duty or transfer duty.
  • Legal and conveyancing fees.
  • Building and pest inspection.
  • Utilities and connections.
  • Home and contents insurance.

Owner costs
Once you’ve purchased an investment property you’re responsible for a number of costs in addition to mortgage repayments. 

Ongoing costs including rates, water bills, insurance, body corporate fees, land tax, maintenance costs and property management fees.

If your property is positively geared you may have to pay tax on your rental income.

Selling costs

When you sell your investment property you’ll have to pay real estate agent fees, advertising costs and legal fees. 

You may also have to pay capital gains tax if the property has increased in value.

Buyer beware

If you decide that you would like to invest in property, be wary of groups offering to double your money, share financial secrets to make you rich or use high-pressure sales tactics.  

These offers are usually too good to be true and have unnecessary high investment risk.

The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.