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What you should know before buying your first investment property

Buying a home to live in is not the same as buying an investment property. While the process might seem similar, there are a few key differences – and it can pay to do your research first.

As a mortgage adviser, I’ve helped many of my clients buy their first investment property. Here’s my take on some important differences to keep in mind.

You’re not buying for yourself

This may sound a little obvious, but it can be easy to forget that this is an investment, not your future home, in the excitement of searching.

When you buy your own home, you think about how it will feel to live there. Things like garden size, kitchen layout or whether there’s a good coffee shop nearby might affect your decision to buy or not buy.

When you purchase an investment property, the thinking is more about what someone else may want – and how the numbers stack up. It’s less about love-at-first-sight and more about rental demand, potential yield and potential long-term growth in the property’s value.

In short: you’re not the one moving in, so try not to shop like you are.

Rental demand matters

Before buying, ask yourself: Would someone want to rent this?

Look at things like:

•    How close it is to public transport.

•    Its vicinity to schools, shops, parks, hospitals or job hubs.

•    The type of tenant who might be interested – a family, students or perhaps young professionals.

These factors can influence how quickly you may be able to rent it out, and the amount of rental return you might receive.

Think about the numbers (not just the neighbourhood)

When buying your own home, you may stretch your budget a touch for the perfect place in the perfect location. With an investment, it’s somewhat different.

You’ll want to look at:

•    Rental yield: How much rent it brings in, compared to the property’s value.

•    Ongoing costs: Rates, insurance, maintenance, strata and property management fees.

•    Tax implications: You might be able to claim some income tax deductions through negative gearing, so it’s a good idea to speak to your accountant prior to purchasing any investment property.

It’s all about making sure that the numbers stack up. A licensed mortgage adviser can help you decipher what might be most appropriate for you.

Future value matters 

We all hope our property will grow in value over time. But that isn’t guaranteed. Markets move. Suburbs change.

Try to research past performance of the area and the property. Looking at local infrastructure and what might be being built nearby can influence a property’s future potential. Ask yourself if you feel it will still be appealing to renters (and buyers) in 10 years’ time.

The loan might be a little different too

Investment loans can often come with slightly higher interest rates. And lenders may be a bit more careful when assessing your borrowing power, since you’ll have another property to manage financially.

It helps to have some expert help on your side here – someone who knows how to structure things properly, what each lenders’ investment loan policies might be, and which lenders offer the most suitable loans and support for investors.

Final thought

Buying an investment property can be a very smart way to build your wealth – as long as it fits your goals, budget and tolerance for risk. But it’s not the same as buying your own home; it requires a different mindset and the decisions are driven more by the numbers rather than the emotions.

A good place to start is to talk through your investment property options with someone who’s been there – that’s Peter Kennedy at Sky Blue Finance. Get in touch today to take advantage of his many years’ experience in helping buyers just like you.

📞 Call Peter on 0414 602 491
📧 Email Peter at info@skybluefinance.com.au

Note: The above information is general in nature and does not constitute personal financial advice. It has been prepared without taking your unique objectives, financial situation or needs into account. You should seek your own independent advice as to whether or not this information is appropriate for you.

Image: Geometric Photography via Pexels