If you are looking to buy an investment property, but not sure where to start or what to do? Here are some steps to assist you when purchasing an investment property
1. Review your Personal Cash Flow and Budgets
An important step is understanding how much cash you have to invest in property and whether you can afford the cash flow impact on owning an investment property. This can be as simple as listing all your assets including incomes and working out your expenses. Work out how much you have as a deposit (making sure you don’t over commit), or how much you will need to save for a deposit.
2. Obtain Pre-Approval For Finance
It is recommended that you get pre-approval for a particular amount so you can go searching for a property within your budget requirements. Your budget will determine where you can purchase and what type of property.
Also you should consider how you will structure your loan, should you go for interest only or principle and interest? Should you lock the rates in on a fixed term or leave it variable or go half/half? The answers to these questions may depend on the economic environment at the time and as always, seek counsel from a professional before making any financial commitment!
3. Set Your Goals
It is important to be clear about your property goals and what you want to achieve both short & long term. For example, if you are looking to retire in 5 years, perhaps start with a 5-year plan then break it down into different timelines. This will help clarify what you need to achieve through your investments.
4. Talk to your accountant
You need to understand the tax implications of buying an investment property and your accountant is the best person to talk to about this. Ask them to clarify the following:
- Negative gearing implications and depreciation allowances on new buildings. They will be able to advise if you are better off buying in a new or old building.
- If you are buying a property with someone else ask whose name should be on the contract as this may have impacts on any future tax benefits, land tax and stamp duty.
- How much they believe you can afford to spend each week on an investment mortgage and the tax impact on this amount.
5. Find a Conveyancer or Lawyer
Most property investors enlist the services of a conveyancer or solicitor to handle the purchase process on their behalf.
6. Searching for a Property
Doing your own research is important, after all it is your money and knowing about the specific market you are investing in is a good idea. Talk to a Hilton Parkes property consultant and find out the following:
- The local market you are considering to purchase your investment property
- What properties selling for in the local area
- How long properties have been on the market
Our property managers have access to all this information including the demographics of the suburb, its location to important amenities such as transport, shops, universities and schools and information on the recent sales and history of the area.
7. Engage a Property Manager
After purchasing your investment property, the next key decision you will need to make is whether you will employ a property manager to help you. The services and expertise offered by a good property manager is worth much more than this fee, plus in many cases the agents service fee is tax deductible.
The key roles of a Hilton Parkes Property Manager:
- Advertising your property for rent
- Open your rental property for viewings
- Database checks are conducted on all tenants applying for a rental property through Hilton Parkes Real Estate
- Manage the condition report process
- Manage the tenancy agreement signing process
- Manage your financial accounts for the investment property and provide regular reports
- Routine inspections are conducted by our property management team after a tenant takes possession of the rental property and are conducted every six months
- Organise tradespeople for repairs and maintenance
8. Manage Property Investment Compliance and Accounting
Hopefully your investment property is being managed and you have reliable tenants paying their weekly rent. Your property manager will keep a record of your monthly income and expenses and be able to provide you with a report for your end of year accounting. Unless instructed otherwise, all the rent received for your rental properties are paid to you by way of direct debit to your nominated bank account. The rent monies can be paid twice monthly. A statement is issued at the end of each month outlining the debits and credits for that month.
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