Buying your first investment property can be an exciting time. For many it’s a way of buying a home they will eventually live in, while for others, it’s a property that will bring them additional income as they get older.
But what do you need to know about buying your first Inner West investment property?
Saving and reducing debt
Much like buying your own home, you will need to have some substantial savings behind you, as well as having as little debt as possible. Loan terms around investment properties can be different to those for your PPOR (principal place of residence), so even if you aren’t ready to purchase right now, having a chat with a local real estate agent and a broker will give you a great idea on how much you will need to have saved and how much your debt might affect your borrowing capacity.
You generally tend to need a 20% deposit for an investment property, and that can come from savings in cash or equity in your current home. If you don’t have 20% you may be able to use Lenders Mortgage Insurance. You do still need to be able to cover any additional costs such as stamp duty and legal fees, and it is wise to have enough to cover a few months of mortgage repayments, because you may not always have a tenant in place or you may have a large repair bill that takes up the rental income for a month.
Reducing your debt is important, particularly if you are looking to borrow larger amounts. If you have a credit card, reducing the amount you have owing and the limit is a great idea; for every $1,000 owing, there generally tends to be a reduction of $10,000 or more in borrowing capacity.
But, have a chat with your broker. Closing your credit card, if you have one, may not be a great idea as showing you can pay off your credit card regularly will improve your credit score, helpful when you’re applying for a loan.
Saving for a deposit can take some time, but by doing up a budget and automating your savings (or paying yourself first), you’ll be well on your way to buying your first Inner West investment property in no time.
Buying Strategy
There are plenty of strategies you can use to buy your first Inner West investment property, and one of the most popular is using the equity in another property that you own. This generally tends to be how people build their investment portfolios quickly.
This strategy does require keeping a good eye on the market and having the right people giving you the right advice. But essentially it requires buying a home or an investment in a growing area, and then using the equity in that property as part of or all of the deposit for an investment property.
It is a quicker way to get another property under your belt, but this strategy does require a lot of planning, research and time in keeping an eye on the market.
Value of a good property manager and real estate agent
When it comes to buying an investment property you can’t underestimate the value of both a good property manager and a good real estate agent; and you don’t need to wait until you are ready to buy to start talking to them.
Start talking to our property managers and real estate agents early. We can give you some great information into which areas and styles of homes are popular with tenants and where rental prices are sitting.
We can also keep you up to date with what is coming onto the market if you choose to receive emails about what’s listing or just listed. However, seeing a listing and understanding the value are two different areas.
When you talk to us and explain what you are looking for and what you need to achieve with a purchase, or sale of one property to fund another, we can enter you on our “to call” list should we have something become available that suits your needs ‒ before it hits the market.
When it comes to property managers, it can take some time to find the right one. You need to choose a property manager who has experience in the local area, as well as experience in the industry. It is always a good idea to interview property managers to see how they would deal with certain situations, what their policies are on difficult tenants and inspections, how they choose tenants and so on.
Choosing a property manager shouldn’t be done on price ‒ it’s really important to choose an agency that meets your needs when it comes to managing your investment property.
Can we help with your Inner West home?
Whether you’re ready to buy or need help to rent your investment property, we have the experience and local knowledge to make your property journey easier.
Looking for help buying or renting your investment property? Our team at Belle Property Balmain support homeowners across Balmain, Balmain East, Birchgrove, Rozelle and Lilyfield. Feel free to get in touch for a no-obligation discussion or property appraisal.
