Steps to buying an investment property

Buying an investment property can be an effective way to build wealth and secure a steady income stream in retirement.

The latest available data from the Australian Tax Office (ATO) shows 2.2 million Australians, or more than 20% of taxpayers, own at least one investment property.

Here are some key steps to take if you are looking at becoming a property investor.

Get a deposit together.

The first step is to gather enough money for your deposit. The bigger your home loan deposit, the less you’ll have to borrow, and therefore the less interest you’ll have to pay.

Usually, banks require at least 20% of the property value as a deposit unless you have Lenders Mortgage Insurance (LMI). You may be able to borrow money with a lower deposit, but you are likely to need to pay for LMI, which adds additional cost to your loan.

Other upfront costs to be prepared for include stamp duty, legal costs, and mortgage establishment fees.

Think about whether you want a fixed or variable-rate loan. Fixed-rate loans offer the security that your repayments won’t change for a set number of years.

You can find out about the range of competitive home loans offered by Police Bank, including special rates for members of the police force here: https://www.policebank.com.au/loans/home-loans.

Work out how much you can borrow.

Before you start bidding on a property, you’ll need to work out how much you can borrow and obtain pre-approval for a loan.

An online mortgage calculator can give you a rough idea of how much you may be able to borrow. MoneySmart has a mortgage calculator on their website that can help you work out how much you can borrow, how much your mortgage repayments will be, and how you can repay your loan sooner.

When you’re ready, the friendly lending team at Police Bank can confirm exactly how much you can borrow and provide pre-approval.

Once you have pre-approval, you can go looking for properties with the certainty of knowing how much you can spend.

Decide on your investment strategy.

Depending on what stage of your life you are at, your investment strategy might be different. 

If you are many years from retirement, you may want to focus on capital growth, whereas if you are nearing retirement or already retired, you may decide to look for a property that can earn you an income through a strong rental return.

Consider where to buy.

Start researching the property market to determine where you are interested in buying. Police Bank’s CoreLogic tool can generate a property report with information on particular properties and comparisons in a suburb or area.  

Generally, it is a good idea to look for areas with high capital growth, higher rental yield, and low vacancy rates.

Buildings near infrastructure such as train stations and shopping centres tend to have higher rental yields.

It’s also a good idea to find out about proposed planning changes in the suburbs that may affect future property prices.

Determine the type of dwelling you’d like to invest in.

Next, think about whether you will look to buy a unit or a house. Units are typically less expensive than houses in the same neighborhood, whereas houses have historically tended to have more opportunity for capital growth when compared to apartments. That’s because the price of a house is a combination of the land and building value, whereas the value of units is based only on the building value.

Find a conveyancer or solicitor.

Once you’ve found a property to buy, a conveyancer can help check the property for any issues that might infringe on regulations or affect a future buyer, such as unapproved structures or easements. They will also prepare and examine the contract of sale and manage the deposit payment and property ownership transfer costs such as stamp duty.

Engage a property manager.

Once you’ve purchased your investment property, you’ll need to decide whether to engage a property manager to look after your property for a fee, or whether you’ll manage it yourself. 

The property manager will be responsible for matters such as finding tenants and dealing with day-to-day property issues, saving you time and hassle. They have a good understanding of tenancy law and can sort out any potential legal issues as they arise, such as tenancy disputes. 

We’re here to help

We’re here to help you along your investment journey. You can contact the friendly Police Bank team on 131 728 with any questions.

Spotlight articles are prepared without taking into account your objectives, financial situation, or needs and are published for information purposes only. You should consider the appropriateness of any content to your circumstances. Visit Important documents to access Terms and Conditions and the Financial Services Guide which are currently available electronically for products of Police Bank Limited. Target Market Determinations are available here. Loan applications are subject to lending criteria and credit approval. Interest rates are subject to change. Fees and charges may apply.

  [1] ATO, Taxation Statistics 2021-22

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