Buying an investment property can be a wonderful thing. You can grow your assets and generate income. If done properly, it can help you take another step towards financial security. Real estate is an ever-changing industry with markets that sometimes fluctuate for various reasons. That’s why a wise investor goes in with good information and their finances figured out. What should you consider before buying an investment property?
Do You Have a Detailed Budget?
Going into real estate investing without a budget is like walking through traffic with a blindfold on. You need to know how much you have so you are certain you can afford the property you want to buy. Make sure you consider all your debts and income so you have a clear, accurate snapshot of your financial status. Remember to account for the following (if applicable):
- Annual taxable income
- Monthly interest on loans
- Monthly rent received from investment
- Accounting fees
- Bank charges
- Council rates
- Government charges
- Land tax
- Property management
- Water rates
- Repair & maintenance costs
Repaying Other Loans
If you have other loan obligations, then you will be required to keep those in good standing while paying for your investment property. This is something banks will consider when deciding whether or not they should let you borrow. You must make enough income to cover both loans plus the cost of living. If your income falls short, you may be declined.
Return on Investment
Chances are you are buying an investment property as a way of increasing wealth. Whether you plan on making this a long or short term project, you need to know what the return on investment will be. Make sure that the possible income is worth the effort and resources required to obtain financing and maintain your investment property.
Rent vs. Resell
There are two options most real estate investors choose when they buy a new house: renting and reselling. Renting is a longer term investment that comes with more responsibilities. You must maintain the property and deal with renters (or hire someone to do it for you for a fee). That monthly income can be beneficial, but you may have to use some for repairs, maintenance and other fees related to being a landlord.
The other option is reselling. Also called flipping, reselling involves buying properties then selling them for a profit. In many cases, the investor may update the home or make repairs or renovations as necessary. This is a good option if you have the resources to put into a home to sell it quickly. You won’t have monthly income trickling in, but you will receive one big payout upon completion of the sale with none of the landlord strings attached.
Get Expert Advice Before You purchase an investment property
Having a professional on your side can make a huge difference in the success of your investment. Understand your options and how to approach the financial side of the process. Seajay Mortgage Broker is available to provide information and recommendations for buying an investment property in Australia.