Selecting the right investment property is one of the most crucial decisions you'll make when building your property investment portfolio. With access to investment loan options from banks and lenders across Australia, the financing side of your investment may be sorted, but choosing the property itself requires careful consideration of multiple factors.
Understanding Your Investment Goals
Before you start researching property options, it's essential to define your property investment strategy. Are you looking to purchase your first investment property, or are you expanding an existing investment property portfolio? Your goals will influence whether you should consider a town house, apartment, or stand alone dwelling.
Different property types offer varying benefits:
• Apartments: Often require lower initial capital and may offer higher rental yields in metropolitan areas
• Town houses: Provide a balance between affordability and potential capital growth
• Stand alone dwellings: Typically offer stronger capital growth potential but may require higher loan amounts
Financial Considerations for Investment Property Selection
When buying an investment property, your borrowing capacity will largely determine your options. Lenders assess your ability to service a rental property loan based on several factors including your income, existing debts, and the potential rental income from the investment property.
Key financial aspects to consider include:
• Loan to value ratio (LVR): Most lenders require a maximum LVR of 80% for investment loans to avoid lenders mortgage insurance (LMI)
• Interest rate: Investment loan interest rates are typically higher than owner-occupier rates
• Stamp duty: This varies by state and can significantly impact your initial investment
• Rental yield: Calculate the potential return on your investment
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Location Research and Market Analysis
The property market varies significantly across Australia, making location research critical when buying a rental property. Consider these factors when evaluating potential locations:
• Population growth trends and employment opportunities
• Infrastructure development and transport links
• School districts and local amenities
• Historical capital growth rates
• Current and projected rental demand
Investment Loan Features to Consider
When applying for an investment loan, you'll need to choose between various loan features that can impact your investment returns:
Interest Rate Options:
• Variable interest rate: Rates fluctuate with market conditions
• Fixed interest rate: Provides certainty for budgeting purposes
• Split loans: Combine both variable and fixed portions
Many lenders offer interest rate discounts for investment loans, particularly for borrowers with strong financial profiles or those purchasing multiple properties.
The Application Process
The investment loan application requires thorough documentation. Lenders typically request:
• Bank statements (usually three to six months)
• Proof of income and employment
• Details of existing assets and liabilities
• Property purchase contract or property research documentation
A streamlined application process can help expedite your property purchase, particularly in competitive markets where timing is crucial.
Calculating Investment Returns
Before finalising your property selection, it's important to understand the financial implications. When calculating investment loan repayments, consider:
• Principal and interest payments or interest-only options
• Potential for negative gearing benefits
• Ongoing property expenses (rates, insurance, maintenance)
• Property management fees if using a rental agent
Tax Considerations and Negative Gearing
Many Australian property investors utilise negative gearing as part of their investment strategy. This occurs when your rental income is less than your total property expenses, including loan interest. The resulting loss can be offset against your other taxable income, potentially reducing your overall tax liability.
However, negative gearing should not be the primary reason for selecting an investment property. Focus on properties with strong growth potential and solid rental demand.
Professional Guidance
Investing in real estate involves complex financial and legal considerations. Working with experienced professionals can help you make informed decisions about both property selection and investment loan options. A mortgage broker can help you access various lenders and compare investment loan features, while a buyers agent can assist with property research and selection.
Remember, building a successful investment property portfolio takes time and careful planning. Each property should align with your overall investment strategy and financial capacity.
Ready to take the next step in your property investment journey? Call one of our team or book an appointment at a time that works for you. Our experienced mortgage brokers can help you access investment loan options from banks and lenders across Australia, ensuring you have the right financing structure for your investment property goals.