Buying an investment property may seem daunting if you haven’t gone through the process before. You’ll find yourself asking – What do I do? Where do I start? Who do I speak to? What is the sequence of events? In order to assist you through this important process, I have put together 7 steps for you to use as a checklist when purchasing a property.
1. Determine what you can afford
You have to be able to afford the cash flow impact on owning an investment property, so reviewing your finances and budget is a good place to start.
2. Find out how much you can borrow
Contact a lender or broker to determine how much you can borrow. Get pre-approval for the loan and understand your monthly payments and interest rates, both fixed vs variable.
3. Get advice from an accountant
You should seek advice from an accountant on what the best name to purchase the property in is, as this could significantly impact on tax benefits. Having the correct name also takes into account potential asset protection issues, land tax issues and stamp duties.
4. Contact a lawyer
Contact a lawyer that specialises in property in advance to assist with conveyancing, searches and settlement. Ensure they know what name is to go on the contract after confirming with your accountant.
5. Conduct thorough property research
This is a critical step. If you don’t do thorough research, you could end up paying too much for a property or investing in a location that doesn’t meet your investment goals, which could end up costing you a lot of money. Do your own research for areas with good growth potential, good rental yields and good rental demand. .
6. Find a good property manager
Once you have located a property, negotiated a sale price and exchanged contracts, begin researching local real estate agents to find a property manager with a good track record. Once you have found the right agent for you, ask them to assist with the ongoing management of your property and future tenants, and agree on a management strategy. You can expect most agents to look for a commission of around 5% to 7% of the gross rent.
7. Manage your yearly compliance requirements
Now that you have settled the property, you’ve found a property manager and you have a tenant in place, you should contact your accountant to discuss how you can assist your cash flow by lodging a PAYG variation. You now know the income (rent) you are receiving after costs, the payments you are paying the bank and the impact on depreciation if applicable.
Remember, always seek professional advice where necessary to determine whether investing in property is appropriate for your individual circumstances.