Investing in property

For first home buyers thinking about buying as a property investor rather than an owner-occupier, read our top tips.

Shift your thinking

With much talk in recent times about the challenges facing first homebuyers in getting a foot in the door to the property market, it’s a good idea to take time to make the ‘mental shift’ to investment property buyer. There are clear differences between buying a property to live in versus buying a property to rent out, and choosing to make your first property purchase an investment will mean making many decisions that, until now, you’ve not needed to consider. For example, where will you live in the meantime: will you stay at home with your parents, will you live with a partner, or will you rent a smaller place? Take your time to consider the various impacts.

Property investment benefits

Buying an investment property can be a great first step onto the property ladder if you can’t currently afford to buy in the area you want to live, and you’ll earn rental income that can be used to help pay off your mortgage. If your investment property increases in value over time, you will benefit from capital growth, too. It could also provide taxation benefits, but you’ll need to discuss with your accountant and trusted financial advisors to understand the true impact based on your unique circumstances.

Property investment risks

As with any investment, there are risks associated with investing in property that you will need to consider. In addition to finding the ideal tenant – which can be difficult – it’s possible that your investment property will be unoccupied for a period of time, or there might be a shortfall between the rental income and your repayments and expenses. You’ll need to factor in these potential costs so that you can cover any gaps. Also, while property values tend to increase over time, they can also decrease. Conduct research and seek advice from trusted advisors to test your thinking, and boost your financial and investment literacy.

Get informed

Understand the value of property in the area. Consider what other properties are in the immediate area, and speak to real estate agents about demand and property values. Accessing independent information from a source such as CoreLogic RP Data can provide information on average property values, demographics, suburb reports and rental yields. Some financial institutions provide free access to these reports, so you can make informed decisions.

Set a realistic budget

The glow of an investment property purchase can wear off quickly if your mortgage repayments mean sacrificing too many of the good things in life, so take the time to get your budget right. Interest rates and repayments may go up in future, and you may have periods when your property isn’t tenanted. As a general rule, most lenders assume that a property will be tenanted 80 percent of the time so you should factor this into your planning.

Invest for the long-term

It is the exception, rather than the rule, for properties to earn good capital growth within a short timeframe. In fact, good capital growth typically develops over a long period of time. If you had purchased a property for $450,000 five years ago, for example, you would have to sell it for no less than $484,000 to recoup just the basic acquisition ($25,000) and selling ($9,000) costs. Average South Australian property prices have increased by just 6.7 percent over the past five years – it’s good, but modest, growth. If you need cash in a hurry, it’s best not to rely on your investment property, as you’ll need to factor in the costs and the time to sell it.

Before you buy

Potentially save yourself money and a stressful problem – like a termite infestation or serious structural issues – by having the property inspected by a reputable building consultant. When you’re ready to purchase, make your offer subject to finance. Even if you have pre-approval for a loan, you’ll need to formally submit an application and receive unconditional approval before you can pay for the property. 

To find out more, call us on (08) 8202 7777 or visit our Member Experience Centre.