Buying an investment property

4 min read

Discover whether an investment property is the right choice for you in retirement.

What do you need to know about buying an investment property?

Buying a rental property is a very popular investment in Australia. For many investors, the appeal of owning an investment property is linked to their affinity with this asset class –Most of us either own or rent a house, apartment or villa. Over time, a quality well-located property could generate long-term growth and decent income returns.

Houses and units are easier to understand than many other types of investments such as shares and bonds, yet owning an investment property is not a licence to print money. There are risks and costs that budding landlords need to consider.

These include costs such as property management fees, legal charges, mortgage interest payments and landlord insurance. On the risk ledger, you have to be convinced you can service the costs of owning the investment property when a tenant decides to move on and you’re left with a vacant property.

If you’re not sure you could cope financially, you might need to rethink your investment strategy. Likewise, you need to be aware that real estate prices can take a tumble.

Need help understanding the pros and cons of investing in real estate? Contact us to arrange to speak to a BT Adviser

Downsizing to buy an investment property

Downsizing into a smaller property or moving to a more affordable location could be a worthwhile way to help finance your post-work lifestyle.

It can be a valuable strategy for empty nesters, who are finding that maintaining a big and empty family home no longer makes sense financially or from a lifestyle perspective.

By downsizing to a more affordable property such as an apartment or townhouse, you could unlock some significant capital tied up in the family home.

With this extra capital, you can have the financial freedom to invest in either an investment property or another asset class. Before you make a move, be sure to speak to a financial adviser to determine whether a downsizing strategy is right for you.

Need help understanding the pros and cons of downsizing and investing? Contact us to arrange to speak to a BT Adviser

Understanding the costs of buying / selling a property

The costs of buying a property include stamp duty for the property transfer and for the registration of your mortgage. Stamp duty is charged by state and territory governments so the amount you will pay depends on the location of the property and its price. To find a stamp duty calculator appropriate to your state, or territory, visit the ASIC Money Smart website.

The costs of buying a property should also include pest and building inspections. A combined pest and building inspection can cost around $500 to $1,000 depending on the size and location of the property.

If you’re selling your current home and buying an investment, you’ll probably sell through a real estate agent and this means paying the agent a commission on the sale. Agents in your area will have different fees, so be sure to shop around.

There are also legal costs for the transfer of a property from a vendor to a buyer. You’re likely to need the professional services such as a conveyancer to legally transfer ownership of the property you are buying or selling. Your conveyancer will also conduct property and title searches to ensure that the seller is legally entitled to sell the property. There will be some minor charges for completing these searches in addition to the conveyancer’s professional fee.

There may be a range of fees levied by your lender such as application, valuation and settlement fees. Make sure you ask your lender or mortgage broker about these fees.

Once you secure the property, you may also need to take out some landlord insurance.  This is insurance that will protect the building, its contents and cover if the tenant defaults on his or her lease obligations.

How much can I borrow?

To work out how much you can borrow to buy an investment property, use the Westpac borrowing power calculator, which can give you an estimate of what you can borrow. Please note that the calculator is not intended to be relied on for the purposes of making a decision in relation to a financial product. You should consider obtaining advice from a financial adviser before making any financial decisions.

Once you know your borrowing power, you'll have a better idea of what your next step will be. You’ll know whether you can afford an apartment near the CBD or a house out in the suburbs.

How financial advice can help with your investment property purchase?

Financial advice could help you achieve your investment property goals. If you’re not on track with respect to your investment property goal, financial advice can help steady the ship and get the right strategies in place to help you achieve your property goals. Financial advice can help you:

  • Establish and achieve your financial goals such as buying an investment property or putting more money into superannuation

  • Make the most of your money with some sound advice around budgeting and establishing savings plans

  • Protect yourself and your assets by assessing your insurance needs

Need help understanding your financial options? Contact us to arrange to speak to a BT Adviser
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This information is current as at 15/08/2016.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.

This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

This Information may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. While such material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.

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