10 Steps To Buying An Investment Property

Buying an investment property is a great way to build wealth and secure your financial future. It can help improve your cash flow, offer substantial tax benefits, and can be more stable than other investments.
On the other hand, despite the benefits, the whole process can seem overwhelming. That's why SM Property is here to help you navigate the process.
We’ve put together 10 steps that can help make buying your first investment property go as smoothly as possible.

Step 1: Start Chatting to a Broker

Before buying an investment property, ask yourself some important questions: How much cash do you have to invest? Do you have enough equity in your home for a deposit? Can you afford it? Start by chatting with a broker, who can help answer questions, weigh risks, and assess your financing options.
A broker can tell you if your debts are too high or if you have enough equity for a deposit. If not, they can advise how long it will take to be ready to buy and how much more you need to save.

Step 2: What Are You In It For?

Think about your reasons for investing in property. Is it to save for retirement, fund your child's education, increase cash flow, or leave a legacy? Your goals will guide your investment strategy.
Whether your focus is cash flow or capital gains, establishing your purpose from the outset is crucial. If you're unsure, consult experts like your accountant or financial advisor.

Step 3: What’s Your Investment Strategy?

With your investment goals in mind, it’s time to decide on your strategy. Consider the following options:

• Speculative Investment Strategy: Quick cash gains from buying and selling properties (flipping).
• Yield Focused Strategy: Purchasing properties with high rental income relative to the purchase price (cash flow investing).
• Growth Strategy: Focusing on capital gains over rental income.
• Balanced Strategy: A mix of cash flow and long-term capital gains.
  Choose a strategy that aligns with your goals.

  Step 4: Figure Out Your Deposit

  Most investors need a 20% deposit for new builds or 40% for existing properties. Start with your savings, then explore other options to reach your target.
  If you own a home, you may use its equity as a deposit on the investment property. Equity is the difference between your home’s market value and what you owe.

  Second Tier Lenders

  If traditional banks aren't an option due to income or financial history, consider second-tier lenders. These reputable trusts and credit unions can help those with unique circumstances.

  Cash Reserves

  Ensure you have enough reserves to cover unexpected expenses, like insurance or maintenance. It's wise to have 3-6 months of living expenses saved.

  Step 5: Get Pre-Approved

  Once you've assessed your finances, talk to your mortgage broker about pre-approval. It indicates where you stand financially and helps you know what to look for in a property.

  Step 6: Location, Location, Location

  Consider where you want to buy. Investment properties require a different approach than personal homes. Location is crucial, influenced by your investment strategy.
  Research different cities and suburbs to determine the best fit for your goals. Each area may be at a different stage in its property cycle.

  Step 7: Decide What Type of Property You’re After

  Think about whether you want townhouses, apartments, or standalone homes. Your strategy will influence this choice.
• Apartments: Better cash flow but lower capital growth.
• Townhouses: A balance of cash flow and capital gains.
• Standalone Homes: Lower cash flow but potential for larger capital gains.

  To New Build or Not to New Build?

  New builds tend to require less maintenance and may be more attractive due to recent tax changes. Quantifying maintenance costs may reveal that a new property is actually cheaper.

  Step 8: Assemble a Team

  You'll need various professionals during the investment process. Key team members include:
• Real Estate Agent: Helps find properties and negotiate deals.
• Solicitor: Reviews legal documents during due diligence.
• Accountant: Advises on ownership structures and tax optimization.
• Mortgage Broker: Secures the best deal for financing.
• Property Manager: Manages the property and tenant relations.

  Step 9: Make an Offer

  Once you find a property, it’s time to make an offer. Consider your deposit, settlement date, purchase price, and chattels included.
  Most investors start with a conditional offer, subject to checks. Once accepted, you’ll have time to secure finances and conduct due diligence.
  With an unconditional offer, you’re committed to the purchase without conditions. Remember, bidding at an auction is always unconditional.

  Step 10: Confirm the Purchase

  If the seller agrees, proceed with the purchase at the agreed price. If you have concerns after your checks, you can withdraw.
  Once confirmed, instruct your solicitor to complete the purchase, and they’ll liaise with your lender for settlement.
  Got more questions? Scottie has nearly 10 years of experience in property investment and sales. If you need help navigating the home-buying process, just contact us today.