10 factors to consider before you buy your next Investment Property

By October 4, 2016Landlord Tips

Are you ready to buy your next property but are not sure where to start?

No matter whether you are buying your first or your twenty first property, knowing your WHAT, is a vital key to choosing the right investment property.  Think of ‘The WHAT’ as the diagnostics of your personal circumstances. Knowing these facts and figures, your own detailed circumstances will make buying (or even not buying and waiting) a property a much easier process and most importantly help to ensure that it is right for you.

So here are 10 factors I think you need to consider before starting to look for a property and making an investment decision:

1. Cashflow

The first thing to consider is your cash flow position. What is your income, what are your expenses and how much do you have left at the end of the month? We have created a personal budget form that you can download below the video to work this out. And therefore what’s available for your investment property.

2. Deposit

Do you have any savings that can help with the deposit? In residential property most banks have a loan to value ratio or (LVR) they will apply. This means they will loan a certain percentage against the property value. I suggest this is best set as a maximum of 80%, however in some select circumstances like a first purchase or when using other property as security, higher percentages can be used. But in short what all this means is you typically want 20% of your purchase price to come from your savings. Or…

3. Equity

Do you have equity in your Principal Place of Residence or in any other investment properties? Equity in other properties can be a substitute for a cash deposit. Setting up a spreadsheet with all your assets and liabilities will give you clarification of your equity. And don’t worry, we have included a template for you to use in our download below the video.

4. Your Credit History

Do you know if your credit history is clean? Have you checked it recently? If not you can do so at https:\www.veda.com.au. If your credit history is not clean it is unlikely that banks will loan any money to you. In this case you may have to find private or low doc lender who can be more flexible.

5. Tax Returns

Are your personal, and if applicable your company tax returns, up to date? If you’re a small business lenders like to see your most recent tax return and increasingly ask for proof that your tax and BAS were paid on time. If you are behind with your returns then that can impact the lenders trust in lending to you and you may have to quickly submit your tax returns. Often the banks want to see the Notice of Assessment which can be the reason for a delay in your bank approval. Having your most recent tax returns submitted can save you some precious time in dealing with your financial institution.

6. Taxation Strategies

Can you take advantage of any taxation strategies like negative gearing? This subject is typically discussed with a qualified accountant and it is wise to know upfront if any taxation strategies are applicable to you. Once you have purchased a property it is often too late to put tax effective structures in place. End note here – negative gearing isn’t always negative. More on that in a later video.

7. Buying Entity

Part of your taxation, succession or asset protection strategy can be buying property in a trust, company or your superannuation fund. You really should get professional advice about this before you go out and buy a property. Once you make a written offer on a property it gets complicated to make changes later on, plus it can cause delays or reduce your bargaining power. So make sure you are clear what your structures are before you go out and look for property.

8. Your Time Investment

Do you have any free time available? Some investments take more time than others. And more importantly are you willing to spend time on your investment? What are your energy levels? Do you feel like painting, renovating or gardening in your new investment or would you rather sit and watch the footy? Are you ok to renovate your investment home on the weekends or would you rather not?

9. Your Skills

What skills could you use for your investment? Are you good on the tools? Are you good at figures or organisation? This will influence if you buy a new home or an older home.

10. Location

Where do you live and what location would you like to invest? What do you know about your location investment wise? Are you prepared to buy an investment that is further away or would you prefer to be close? Are there certain areas that are better suited for the kind of investment you are looking for than others?
These 10 points are all important things to first consider before you start looking for a property. There is no right or wrong answer to any of those questions but answering them will help your next step become clear. Now don’t forget we have already started the work for you with the prepared templates that you can download by clicking on the link below, enter your name and email and you should find the worksheet in your inbox straight away.

In our next video I will be looking at the WHICH or the type of property investments that are available to you. I look forward catching up with you soon.

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