Buying property is a popular way to grow wealth, but the process can be a little daunting for first-time investors.

In this article, we’ve highlighted five key things to be aware of when buying your first investment property.

1) Know your budget and organise pre-approval

Whether you’re using a saved deposit to buy your investment property or accessing the equity in your existing home to expand your property portfolio, it’s important to know how much you can actually borrow before beginning the property hunt.

Having a clear understanding of your borrowing capacity in advance and organising pre-approval through your lender will save you time and energy looking at properties that are outside your reach.

LDB offers advice on all property-related matters and can help you establish a forward-looking budget.

If you’re unsure about whether you can use any existing equity to buy an investment property, we can provide clarification.

2) Research is key

When it comes to buying an investment property, it’s imperative you do your homework.

Investigate the capital growth potential of the areas you are interested in, as well as the rental yield, which is the rate of income return over the cost of the investment. Remember, location is key!

Check with the local council and state governments whether there are any planned infrastructure developments that could affect the property’s value.

If there is a new train station in the pipeline, for example, your property’s value may increase.

Lastly, investigate the zoning and consider any planned changes that could have an impact.

If you’re looking to purchase in Victoria, you may find this guide to buying property in Victoria useful as it covers state-specific information.

3)  Make sure the property is the right fit

The property you choose to buy will depend largely on the types of tenants you are trying to attract.

Think about the kind of amenities your target market will desire. For example, if you are buying an apartment close to the CBD, your target market may be young professionals who want to be close to entertainment hubs.

Conversely, if you’re buying a four-bedroom family house further out in the suburbs, you might want to find one that is close to parks or good schools.

Don’t forget to organise building and pest inspections before putting in an offer or bidding at auction to be certain the property is structurally sounds and free of pests.

4) Remember the ongoing costs

Many first-time investors think about the upfront costs, like stamp duty and conveyancing, without factoring in the ongoing costs of owning an investment property.

These may include council rates, water fees, owners’ corporation levies, property management costs, insurance and maintenance/ repair costs. Don’t forget to include these in your budget to make sure you can afford the property.

5) Think about the tax implications

When you buy an investment property, you can be negatively, positively or neutrally geared.

Negative gearing is when the cost of the property is greater than the income produced and you can claim losses against your assessable income.

A property that is positively geared generates more income than the expenses involved, and you will be liable for tax on that income.

If you’re neutrally geared the expenses and income are equal. Speak to us and we’ll explain the tax implications.

Talk to the property experts

For strategic property investment advice, please call (03) 9875 2900 or send us details via the contact form below.