Guide to buying an investment property

Before you start looking for an investment property you need to work out how much you can afford to pay so you don’t waste time on properties in the wrong price range. This will be determined by a number of factors.

Buying by yourself
If you are buying by yourself the amount you can borrow will be determined by your finances alone.

Buying with somebody else
If you are buying with somebody else, be it a spouse, partner or family member, the amount you can afford to borrow will be determined by both of your finances.

Your deposit
When you come to buy an investment property the size of your deposit is very important for several reasons:

Before you start looking for an investment property you need to work out how much you can afford to pay so you don’t waste time on properties in the wrong price range. This will be determined by a number of factors.

Income
The size of your income has a big influence on how much you can borrow because the more you earn the more you can afford to repay. Make sure you include and document all of your sources of income when you apply for a loan including salary, rent, interest, and business income.

Expenses
Your lender will also want to know your expenses because it helps them assess how much you have left over to make loan repayments.

Home equity
If you have substantial equity in your home you can potentially borrow against it and use the money as a deposit for your investment property. If you have enough equity, this can help you avoid Lender’s Mortgage Insurance.if you have substantial equity in your home you can potentially borrow against it and use the money as a deposit for your investment property. If you have enough equity, this can help you avoid Lender’s Mortgage Insurance.

Negative gearing
Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year. This creates a loss, which can normally be offset against other income including your wage or salary, to provide tax savings.

Repayment type
Interest-only loans have traditionally been popular with investors. However, you will pay a slightly higher interest rate for interest-only.

Buying an investment property isn’t just about paying the price of the property. There are some extra costs all buyers should be aware of.

Stamp duty
When you buy a propertynyou have to pay a state tax called stamp duty within 30 days of the property settlement. Stamp duty is decided by separate state and territory governments, rather than the Federal Government, so rates vary.

Lenders Mortgage Insurance
Lender’s Mortgage Insurance is an insurance policy that protects the lender from financial loss in the event that the borrower can’t afford to keep up their mortgage repayments. Most lenders make it a condition of borrowing that you pay for a lender’s mortgage insurance policy if you have less than 20% deposit.

Valuation
Most lenders will require you to pay for a valuation of the property you are using as security when you apply for a loan.

Conveyancing
Conveyancing is the process of transferring ownership of a legal title of land (property) from one person or entity to another. When you buy a property you should appoint a conveyancer or solicitor to handle the conveyancing for you.

You can save yourself a lot of time and heartache if you pre-qualify for a loan before bidding on a property.

What is pre-qualification

Also known as conditional approval or preliminary approval, pre-qualification is an offer from us to lend you an agreed amount, subject to full approval. Prequalification remains valid for four months. To gain full approval you will need to supply more supporting documents and updated information.

Apply online
You can apply to prequalify with loans.com.au in just a few minutes by visiting our website.

Know what you can offer
Once you have pre-qualified you will know what you can offer a seller or what you can bid at auction. This means you can avoid wasting time looking at properties in the wrong price range and that you can bid with confidence.

There are two ways to buy a property in Australia. You can make an offer to purchase via a contract, or by bidding at an auction.

Private Sale

Most residential properties in Australia are sold by making a private offer via a contract to purchase. Using this method, the owner sets the price they would like to get for their property. You put in an offer, which is usually below the asking price and negotiate as necessary with the seller from there by writing your offer on the contract and giving it to their agent. Offers pass back and forth until you and the buyer agree on price and terms and exchange contracts. You pay a deposit, typically 10 per cent of the selling price, and there is a cooling-off period. The cooling-off period allows you to complete final legal, building and financial checks but if you do back out of the sale you will most likely forfeit a small part of you deposit. When you buy via a contract offer you will typically also include clauses in the contract for finance and a building-and-pest inspection. These allow you to cancel the purchase without penalty if you cannot get acceptable finance or if the building and pest report has serious faults.

Auction

A property auction is a public sale usually conducted by an agent acting as an auctioneer. It is governed by strict rules. The auction is advertised for a specific place, time and date. Prospective buyers bid and the property is offered to the highest bidder. There is an advertising campaign with open house inspections for several weeks leading up to the auction date. When a property is sold at auction, the owner sets a reserve price – the minimum for which they will sell the property – and prospective buyers make their bids, with the property going to the highest bidder over the reserve price. The most important thing to remember is that there is no cooling-off period. You will also need to provide a substantial deposit on the day of the auction if you are the winning bidder. This is usually paid by cheque.

Now you have made an offer and had it accepted either at auction or through a private sale, this is what happens at loans.com.au for final approval.

Just follow the simple steps below to lock in an investment property loan with a super-low rate.