Investment in real property, such as residential real estate, is likely to be a lengthy process and one that usually involves a plan for the long term. To ensure you have considered what is required before making the big purchase, we’ve outlined steps you need to take in that process.
1. Make the commitment
A property investment must be a long term commitment in order for it to be worthwhile, so the very first step is to ‘do the numbers’ in order to evaluate your budget, potential constraints and future financial and personal obligations including the potential impact on family members.
“Consider your future as far ahead as you can,” says an MFAA broker. “You need to assess your ability to maintain or improve personal income as well as your commitment and ongoing financial capability to continue to service the financial impact of the investment for a minimum of five to ten years, as that’s what generally brings premium results.” You need to also make the commitment to ‘manage’ the investment – even if you outsource the day-to-day tasks involved including locating suitable tenants, collecting rents, paying relevant costs in rates and taxes as well as ensuring that the property’s repairs and maintenance are kept up to date.
2. Obtain Professional advice
You now need to obtain professional advice. An investment in real estate is likely to be significant in relation to your current financial position. If you have already discussed the investment with a licensed financial planner or investment adviser and residential real estate is considered the most appropriate in your current circumstances, you will have considered aspects including rental return, maximum capital growth and/or tax effectiveness.
You next need to locate a suitable property. There are buyers agents now available who can assist you in this process – potentially saving you money by disregarding inappropriate properties and concentrating on those that are more likely to deliver the highest return and capital increase to you over time.
Following that, unless you have cash or other investments that can be converted to cash to make your property investment, the next step is to contact a mortgage broker to help you to secure finance to enable purchase.
This will give you the opportunity to ask the broker as many questions needed to alleviate any uncertainty you may have about securing that finance.
These days, brokers who assist consumers to secure finance for residential property are heavily regulated and must be licensed (or appointed by a licensee). They must also hold membership of the external dispute resolution scheme and must hold appropriate qualifications including maintaining continuing professional development. The broker should also hold membership of an industry body, like the Mortgage & Finance Association of Australia (MFAA) which triggers a requirement of an additional layer of obligations through compliance with its Code of Practice.
Using the services of an accountant, financial planner, solicitor/conveyancer and property manager on your team will also assist you in coming to your decision.
3. Assistance from relatives & friends
Talking to friends, family and acquaintances who have already made such an investment, or are currently considering one, can help your awareness of stumbling blocks and potential issues that you might otherwise miss. While any issues you face may seem new, it can help to bounce these off a trusted friend or relative who has been there before.
4. Collate your information
In order to apply for finance, you will need proof of your current income, employment and your assets as well as all liabilities including debts, loans, rental payment, outstanding credit card obligations and any other due payments, for example, buy now pay later commitments. Collate these and also any paperwork that helps support your personal position. For example, if you have been a long-term tenant, get a 12 month tenancy statement that proves your capacity to make regular repayments. Before applying for a loan, minimise your current debt load, and if possible, reduce the limit on, or cancel any credit cards you have, as this is perceived by lenders as potential for debt.
It is strongly recommended that you have a fully assessed pre-approval before you start your search. This will allow you to know what your financial limits are so that you can make an offer when you’ve found a property you like.
5. Other things to consider
An investment property purchase should not be an emotional decision. It is a business decision. If the property isn’t as clean as you would like, don’t assume that it hasn’t been maintained unless there are other clues to demonstrate that. Cleaning and even simple maintenance tasks are things you can do yourself or have done for you that you can include in your budget.
“Consider choosing a property based on whether you feel like you could live in it. While it’s still a business decision, you also have to adopt the mindset that you could be selling to an owner/occupier down the track, which could be an emotional purchase for the buyer,” says the broker. If however you plan to rent the property, your decision should be based on what would appeal to the type of individual who wants to reside in the area.
Please contact us on Phone 07 3340 5169 if you seek further assistance on this topic.
Source : Mortgage Finance Help November 2020
Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)
Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.
Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page
