Skip to Main Content

What to consider when buying an investment property

Ever thought about buying an investment property, but just weren’t sure where to start? It’s not just all about the property – becoming a property investor means you’re becoming a landlord, too, so it’s not something to enter on a whim. Done right, though, and with these important investment property considerations planned out, buying an investment property can be a great way to set yourself up for a better financial future.

Key takeaways:

  • Buying an investment property can provide financial benefits, but there is work involved each step of the way.
  • Getting your home loan right and finding a property that will work for you is vital.
  • You’re not just becoming an investor, but a landlord – are you ready for all that this involves?

How to get a home loan for an Investment Property

Just like with the home you buy to live in, getting your loan right before purchasing an investment property is important. If done right, you give yourself the best chance to maximise the income the property will hopefully drive.

If you’re new to the investment property game, you might like to consider involving a financial advisor or planner in helping you set up your investment property home loan. While interest on an investment property loan is generally tax deductible, some borrowing costs aren’t deductible immediately. It’s knowing the difference that counts, which is why some expert help could help you move with confidence. What’s more, setting up your investment loan this way allows you to keep separation between your personal home loan and your investment loan, which is wise so you can maximise the ongoing tax benefits.

Of course, it should go without saying that you should make sure to have the proper deposit amount secured for the investment home loan type you choose, and should do the math to decide whether a fixed or variable interest rate is going to suit your plans for investing. While it’s commonly held that variable rates prove cheaper over time, getting the timing right and being able to take advantage of a hot fixed rate may work financially in your favour.

Most investment home loans will be set up as Interest Only, rather than making principal and interest repayments. This means you simply pay back the interest you owe on the loan, rather than making repayments on the interest you owe, plus the amount you borrowed for the property. The reason many investors set up their loans this way is that with an interest only loan, your negative gearing benefit declines as you pay down the principal amount.

Ultimate Investment Home Loan

Interest rate 2.79 %# p.a.
Comparison rate 3.22 %^ p.a.
~Discount variable rate, principal and interest
Our Ultimate Investment loan combines great value with a range of features designed to make investing easier.

How to use equity for property investment

So, if you’re a first-time investor, you may be wondering how many people get a start in this market.

Commonly, the answer comes back as taking advantage of equity in personal home loans.

Equity is the amount of money you own in your home.

A simple way to think about it is the difference between what your property is currently worth, and what you still owe on your home loan.

So, if you took out a home loan for the house you live in 20 years ago for $600,000, and over that time you’ve paid the loan down to $200,000 – you now have $400,000 sitting there in equity.

As a budding property investor, you now have the option of using this equity to secure finance for an investment property you wish to buy.


Finding the right investment property

It’s easy to think that finding an investment property will be easy – after all – you chose your home for yourself, didn’t you? You might even consider yourself a bit of a dab hand at this sort thing.

Selecting an investment property is completely different to searching for one to live in yourself. You need to see every property through a purely financial lens. We’ve put a few things worth considering below, but your every property you look at, your first question should be – can this property make money?

Right property, right price

Investing is a numbers game. You need to be confident before you invest that your cash flow over time is going to be able to allow you to turn a profit. One of the key numbers to take into consideration here is the price you pay for your investment property. While it can be attractive to go towards properties that seem to be bargains, be sure to look further, and always do your research, as everything is priced for a reason. The unit that an agent is spruiking to you at rock bottom price may be in an area where renters are predominantly families who prefer houses with backyards, for example.

Understand where you’re buying

It’s never a good idea to buy in a suburb you’re not familiar with. Whether you do the legwork yourself and get to know an area, or look at real estate data and council development plans, you should understand the local market as it stands today, and where it’s going into the future.

Building condition

Whether you’re buying a unit or home, make sure you engage professional building inspectors to give you a full report on the age and condition of any property you’re considering buying as an investment. Firstly, this will help you identify any potential large maintenance costs you’ll have to make to bring the property up to scratch, which could significantly impact your cash flow initially, even with negative gearing. Secondly, making sure the property is going to be livable for any future tenants will make your job as landlord that much easier, and maybe cheaper.

Being a landlord

Once you purchase your investment property, you’re now (hopefully) a landlord.

But are you actually going to be expected to head round and replace light bulbs and fix broken air conditioners for your tenants? In a word – no. This is where a Property Manager comes in.

The overwhelming majority of property investors rely on a Property Manager for taking care of:

  • Marketing the property and finding tenants to fill it when vacant.
  • Showing the property to potential tenants, and screening them.
  • Collecting rent from tenants and moving this to your bank account.
  • Handling late rents, and if needs be – the eviction process.
  • Performing property inspections and handling tenant complaints.
  • Arranging any maintenance work needed on the property.
  • Paying property related bills on your behalf, including Landlord Insurance.

While property managers can be expensive (most charge between 8-12% of collected rent, which is tax deductible), finding a good one can really make life easier for an investor short on time.

Can't quite find what you're after?

Drop into a branch

Our friendly staff are happy to help with all your banking needs. Find a location near you across NSW and South East QLD.

Find a branch

Can’t make it to a branch?

Our mobile lenders are more than happy to come to you. Find a lending expert close to you and request a callback today.

Find a lender near you

Get in touch

Speak to our contact centre
Monday to Friday 8:00am – 6:00pm AEST.
Saturday 8:00am to 1:00pm AEST

Call 13 13 86

All articles