Buying an investment property can be a lucrative business, allowing you to generate decent cash flow when done right. However, there can be a lot to consider, especially if it’s your first investment property. Similar to buying your first home, it’s worth sitting down and figuring out your options before you jump into buying your first investment property. Here are the factors, and some challenges you should consider before you jump into the world of investment properties.
1. Consider if you’re ready to be a property manager
There’s a lot more to being a landlord than taking your tenants rent every month. In fact, it can be a rather challenging job, requiring you to choose the right property, find reliable tenants, and keep up with the general wear and tear of the property.
It’s worth being handy on the tools, but if this isn’t an expertise of yours than you may consider hiring a property manager to handle those tasks for you. However, keep in mind that this will dip into your profits and should be factored in as another expense on top of buying your investment property.
2. Understand cash flow
This is a very important for any investment property. Cash flow refers to the money that flows to and from your investment property. Whilst you will receive cash flow weekly when your tenants pay their rent, this cash will then flow out in order to pay things such as mortgage repayments, maintenance costs, rates, utilities, and strata or body corporate fees.
Speaking to our mortgage brokers at MyChoice Home Loans can be one of the smartest decisions you’ll make, as they can help you understand if you have the right budget for such a big investment. It is common over the first few years to experience a loss, especially if the rental income on the property is not enough to cover the mortgage and its running costs. It can take time to break even and then make a profit on an investment property, which is why it’s so important to understand cash flow.
3. Secure an investment loan
Similar to what you may have experienced when you purchased your first home, your first investment property will generally require a loan to secure the property. Investment properties may require a larger deposit than owner-occupied properties and may have tighter approval requirements. Typically, you will need a 20% deposit to purchase an investment property and successfully take out an investment loan.
Chat to your local MyChoice Home Loans consultant in order to get the most out of your investment, making sure your investment loan works hard for you. Using our MATCH system, we can help you gain access to an array of lenders who will be able to help find the right loans for you.
4. To build, or to buy?
Tossing up whether to build or buy your first investment property? The biggest difference will be the wait on rental income and cash flow. The sooner you can secure tenants for your property, the sooner you can start enjoying your investment income. It’s worth noting a brand new home not only meet all the modern-day requirements for your tenants, it may help to secure a higher weekly return.
5. Focus on location
Where you choose to purchase or build your first investment property depends on the tenants you wish to target. For instance, young singles may want an apartment close to restaurants, retail facilities and night life, whereas families will want homes closer to great education precincts, parks and public transport facilities. Additionally, you may also wish to look at suburbs tipped for growth.
6. Look for low maintenance property
You don’t want to be spending every weekend making repairs at your rental property, and to be fair your tenants probably don’t want you there every weekend either! This is why it’s important to consider a low maintenance property when buying your first investment property. A new home is ideal for investors, as an older property may require a lot of maintenance and will depreciation will reduce your profits.
7. Consider the tenant
By considering the needs and wants of your tenants, you’ll be poised to make a savvy decision when it comes to choosing your first investment property. Whist tenants don’t typically get emotionally attached to a place they won’t be living in forever, they still appreciate a good kitchen and a nice bathroom, and air conditioning too!
Parking is also an important thing to consider. Look for new-home builds that offer two or more car spaces and wider streets for extra parking.
If you’re interested in securing your first investment property, contact your local MyChoice Home Loans consultant and book in for your obligation free financial review, and find out how we can secure you an investment property loan, your way.
