6 tips for your first property investment

Lots of people consider property investment, but aren’t sure how to get started. You might not even know that there are different investment approaches, or what those differences mean in the long-term. If you’re thinking about getting started on property investment, here are some tips to put you on the right track.

1. Work out your ideal investment outcome

Are you looking for money to retire on? Building equity for capital growth now? Passive rental income? Having a clear goal will help you shape your investment strategy and get you there quicker. Your goal might even be something like wanting a rental income equal to your salary in a given year. It doesn’t really matter what that goal is, so long as you’re committed to it. Knowing what you want and when you want it by means that you can give yourself yearly goals, instead of just hoping it all works out in the end. It will make it much easier to track your success!

2. Work out where your deposit is coming from

Where will your deposit come from? If you happen to have a chunk of cash in the bank, this question is pretty easy to answer. Fortunately you don’t need money in the bank to get a deposit together. If you have equity in your home (or other properties you may own), you can access this instead of needing to save cash.

There are advantages and disadvantages to a higher deposit. If you put down at least 20%, you can save on lenders mortgage insurance, but it does leave you with less money to play with. Paying a larger deposit might feel like the better option, but if it leaves you without contingency funds (or slows down your investment strategy), it might cause more problems than it fixes.

If this is your first investment property, remember that you might not be aware of all the costs you might incur. They can be quite different to owning the home you live in, so try not to overextend yourself financially.

3. Pick the right property for your goals, not for you

Heart plays a huge part in picking a home, but an investment property isn’t going to be your home. You aren’t going to live there, so what you like or don’t like isn’t as important — instead, you need to think about how well this property serves your goals. If you’re after capital growth, how quickly will the value of this home increase? Is there land you can subdivide? If you’re after long-term rental income, you might consider how suitable the house is for renting (how many bedrooms, proximity to schools etc.).

You should also be aware that the location or type of property may put your lender off (there are limits on how small a property you can purchase, for example), so if you’re looking at something unusual, you should do your research, or even contact your lender to ask.

4. Find out how much you can borrow

This is the real make-or-break point. The amount you can borrow will impact the property you can ultimately buy, and also your lifestyle for the life of the loan. Unfortunately there is no single formula to let you estimate your potential loan. Each lender uses their own calculations, and they will take your individual circumstances into consideration, and they have their own assessment criteria so you might suit some better than others. They will likely factor in your employment and financial situation, but could also be impacted by the number of properties you own and the size of your proposed deposit. If you don’t like what one lender says, ask another.

5. Pick a loan to match your finances and lifestyle

Fixed or variable? As always, it depends on the market and your circumstances. If you like to plan far into the future, a fixed rate loan might suit you better, as you’ll know what your repayments will be. However, if you like a bit of flexibility and the ability to put extra money into the loan, then variable might be the one for you.

Your personal finances will play a lot into this, so it might be a good idea to talk to your broker about the options available for your situation.

6. Don’t be afraid to take the plunge!

After the discussions and negotiations, you’ll finally be prepared to buy your first investment property. It’s a huge step, so don’t be surprised if you feel nervous. Fortunately, if you’ve followed the tips we’ve given here, you’ll know that you’re making a great choice. It can be nerve wracking to take that first step, but once you have, you’re on your way to the financial future you planned.

Like any long-term project, getting started is half the battle. Property investment can be a long game, but so long you make decisions that support your goals you’ll stay on track. Having a clear vision of what you want will also make it easier to pick a property, and the lessons you learn along the way will help you make better decisions in the future. Good luck!