Buying a holiday house in Australia can be an enticing prospect, as it offers both rental income and a personal escape should you decide to use it for your own trip. However, it’s essential to approach this investment with a clear understanding. Start by focusing on its financial aspects rather than just the lifestyle appeal. […]
The Golden Rules of Buying Your First Investment Property in 2024
As we welcome 2024, many of us are looking into property investing in the hope of reaching our financial goals. If you’re set on buying your first investment property, understanding the golden rules of property investment is a good place to start. Today, we’ll share some of these golden rules, which can serve as a roadmap as you begin your real estate journey.
Understand the Market Value and Potential
One of the key strategies in property investment is purchasing properties under market value with the potential for added value. For instance, you’re eyeing a two-bedroom property in a developing suburb that is priced below market value simply due to cosmetic issues. If you repair that property and do minor renovations, you may be able to significantly increase its value and rental yield.
However, the strategy of paying under market value requires thorough market research. Learn why a seller might be motivated to sell quickly; Is it simply because of a few repair issues, or are you about to get your hands on a too-costly house-flipping project? You also have to study the local property market. What makes the neighbourhood desirable? What drives the rental demand in that area? Know these things so you will be better equipped to buy an investment property in 2024.
Research and Pick the Right Suburb
Location is a cornerstone of property investment. Look for suburbs with strong growth potential, good infrastructure and amenities. Consider factors like proximity to transport, schools, and shopping centres, which are attractive to tenants and can drive capital growth. A suburb with upcoming infrastructure projects could also be a wise choice because it offers potential for growth as the area develops.
If you’re thinking about purchasing property in Hobart, you’ll find suburbs that can offer scenic beauty, a relaxed pace of life and educational & employment opportunities to your potential tenants. Check out our blog about the allure of buying a house in Hobart to learn more about living in this thriving city and its suburbs.
Save a Deposit
Your property investment journey should begin with a solid financial foundation. Saving a large home loan deposit helps to reduce your loan-to-value ratio (LVR), which in turn reduces costs. A deposit of at least 20% of the property’s value (80% LVR) can help to avoid Lenders’ Mortgage Insurance and secure more favourable loan terms. If you’re targeting to buy an $800,000 investment property, a 20% deposit equates to $160,000. This commitment demonstrates financial discipline and reduces your borrowing needs.
Invest with Logic, Not Emotion
Investment decisions should be based on financial viability, not personal preferences. Investors often look for properties that appeal to a broad rental market and have potential for capital appreciation. Avoid emotional attachments and focus on the numbers. For instance, a practical, well-located two-bedroom apartment might yield better rental returns and appeal to a wider market than a large, luxurious holiday property.
Exercise Caution with Auctions
Auctions can be a gold mine for good properties to rent out, but they are often competitive and emotionally charged environments. You may overbid and let your first investment property cause a financial strain rather than gains. Consider private sales, which often offer more negotiation flexibility and a cooling-off period. But if you’re set on an auction, be sure to get a home loan pre-approval and have a clear ceiling price before bidding. That way, you won’t overbid and scramble to get suitable financing right after winning an auction. Keep in mind that pre-approval is subject to the value of the property; you could have pre-approval of up to $800,000, but if the property is valued significantly less and does not meet the lender’s LVR requirements, there’s a chance you won’t be able to access the finance despite the preapproval.
Understand the Concept of Yield and Cash Flow
A successful investment property should generate a healthy rental yield, ideally higher than the suburb average. This involves calculating the gross rental yield and considering the net yield after expenses.
For example, a property purchased for $450,000 with a weekly rent of $475 would have a gross yield of approximately 5.49%. Your required yield depends on your investment goals and should take into account taxation implications.
Learn the Nuances of Investment Loans
When venturing into property investment, comprehending the intricacies of investment loans is pivotal. Here are some key considerations for investment loans:
- Loan-to-Value Ratio (LVR): Understand the LVR you can achieve with your investment property loan and how it impacts your borrowing capacity. An LVR of 80% and higher will require an additional payment for lender’s mortgage insurance. Lower LVR’s often mean lower risk to the lender and often come with more favourable interest rates.
- Interest Rates and Loan Terms: Compare different investment loan options, focusing on interest rates and terms that align with your investment strategy.
- Rental Yield vs. Loan Repayments: It’s important to understand where the cash flow for loan repayments will come from. If your investment strategy requires a positively geared investment, the expected rental income from the investment property will need to comfortably cover the loan repayments and other associated costs.
Moreover, many people don’t realise that they can use the equity in their current home as a deposit for their first investment property. This approach is particularly beneficial if you lack the necessary cash savings or prefer to reserve your cash for other purposes. Suppose your home is valued at $800,000 with a loan balance of $500,000. In this scenario, you could potentially access equity up to $140,000 (assuming a borrowing capacity of 80% of your property value). Many property investors use their equity as a springboard for buying an investment property in Australia.
Get Expert Guidance from Deltos Finance
Entering the property investment market in 2024 requires a blend of strategic planning, financial prudence and market insight. If you need expert, tailored advice and support, Deltos Finance is ready to assist your first foray into property investment.
Our mortgage brokers in Hobart specialise in investment loans and equity release loans. Their expertise lies in advising exactly how much equity you can access and whether it’s enough and feasible to help you afford a new investment property. They also assess if the potential rental income can meet your financial goals.Contact us today to speak with one of our seasoned mortgage brokers in Hobart.
Find Your Perfect Finance Solution
Let's discuss your finance needs. We’re here to help.
More posts from Deltos Finance
I Want a $900,000 House: What Sized Loan Can I Get?
Imagine the moment you step into a $900,000 home that is uniquely yours. This isn’t just any property; it’s a dream turned into reality, a space where future memories will be made and life’s milestones will be celebrated. However, the path to owning such a prized asset involves navigating home loans. Today, we’re here to […]
To Fix or Not to Fix Your Home Loan: What to Do When Fixed-Rate Term Ends
When your fixed-interest home loan term comes to an end, you’re faced with a decision on what to do next: to fix or not to fix your home loan. This is a crucial time to review your options and potentially secure a more competitive deal on your home loan. It can be a significant event […]
Purchase Your First Home Faster with These Good Financial Habits
Buying your first home is a significant milestone, but it can also be a challenging journey, especially with rising property prices. But with good financial habits, you can accelerate your path to homeownership. Here are some essential tips to help you prepare for your goals better and purchase your first home faster. 1. Identify How […]
Let’s Settle the Age-Old Housing Debate: Build or Buy a Home?
When entering the property market, many potential homeowners and investors face a dilemma: should they build or buy a home? Buying an established home may seem a quick and easy path to homeownership, but there are certain advantages to building a house that you should also consider. So, today, we’ll try to settle the age-old […]
7 Questions to Ask Your Mortgage Broker When You’re Buying Your First Home
Buying your first home is a significant milestone often filled with excitement and big decisions. It’s also a path filled with questions, necessitating expert guidance. At Deltos Finance, we recognise the significance of well-informed decision-making, particularly for those navigating the Australian housing market for the first time. In this context, we’re here to present the […]
How Long Do Home Loan Approvals Take?
Besides asking about the number of bedrooms or what their potential neighbours are like, prospective homeowners also often ask, “How long do home loan approvals take?” This blog aims to shed light on this question, providing clear insights into the mortgage approval process in Australia. We’ll highlight key factors that might influence the timeline and […]
Ready to Buy Your First Home? Here’s How to Get Started with a First Home Buyer Loan
While the dream of owning a home is universal, facing the financial intricacies of a first home buyer loan can seem intimidating. That’s where we step in. Our mission? It is to simplify the process and guide you to ensure a seamless experience. For starters, here are some tried-and-true tips for applying for a first […]
How Do Construction Loans Work When You Own the Land?
We’ve all heard the adage, “Location, location, location!” And for many homeowners, having the perfect piece of land is the dream foundation for building their ideal house. But once you have that pristine parcel, the next question beckons: how do construction loans work when you own the land, especially in Australia? Let’s unravel the intricacies […]
Your Building Partner: How a Construction Loan Broker Amplifies Your Borrowing Capacity
Standing on an empty plot, you can easily visualise the arches, corridors and rooms of your future home. Yet, as inspiring as these visions are, they require a solid financial foundation to come to life. This is where a construction loan broker becomes not just an ally but also a pivotal part of your journey. […]