6 considerations when buying an investment property

Whether you're an existing property owner or entering the market for the first time, we look at some of the key points to consider.

While Australia has seen a marginal downturn in the number of owner-occupied homes in recent years, there has been a slight upswing in the number of people buying investment properties.

If it’s something you’ve been thinking about, we look at some of the key things to consider.

1. Set a budget within your means

Unless you’re paying for your investment property outright, lenders will generally ask for a minimum deposit of between 10% and 20%. Other lenders may offer you finance without this if a family member pays the deposit, signs as guarantor or buys the property with you as a co-owner.

The important thing to remember is that it’s not just the purchase price you’ll need to budget for. There will be added costs such as stamp duty, legal and conveyancing fees, body corporate fees (if the property is an apartment), landlord insurance, maintenance, and interest on borrowings.

For a rundown of the upfront and ongoing costs you’re likely to come across, check out our article - How much does it really cost to buy property.

Meanwhile, if you already own property, it may be possible to access the equity you have in it to secure additional finance. You can see the pros and cons in our article - How to use equity to invest.

2. Check your credit history

Before you start inspecting properties, be sure to check your credit history, as a tarnished credit report could affect your ability to get approval on a loan.

This is particularly important given that government figures show 30% of Australians who’ve requested their credit report have found mistakes in it1. For more details, check out our article - How your credit history could impact tomorrow’s borrowing plans.

3. Research where to buy and what to buy

What you decide here will impact the money you could make in both the short and long term.2

When you’re doing your research, things to investigate include:

  • What are properties selling for in the suburbs you’re looking at?
  • What are average rental returns and vacancy rates like in these areas?
  • Are there local amenities, such as schools, shops and transport?
  • Do these suburbs have price growth potential?
  • Are there proposed developments nearby that could affect prices?
  • Do the properties you’re looking at appeal to different demographics?

4. Decide who’ll manage the property

If you’re time poor or located a long distance from your investment property, another thing you’ll need to think about is appointing a property manager. Note, this will come at a cost of approximately 7% to 10% of your total rental income each week.3

Some of the things a property manager will take care of include:

  • The screening of potential tenants
  • Before and after property condition reports
  • Routine inspections
  • How and when tenants pay the rent
  • Maintenance and repair issues
  • Responding to complaints/evictions.

Websites like Local Agent Finder can help you locate property managers in the area and compare fees, services and experience.

5. Know your legal obligations

While property managers can help out in a variety of areas, as a landlord you will still need to be aware of your legal obligations.

There are various responsibilities that apply to landlords before, during and when ending a tenancy. These can differ depending on which state in Australia the investment property is located.

For details, check out the appropriate state government or Fair Trading website where your investment property is based.

6. Look into tax deductions

There can be a lot of costs associated with an investment property, but the good news is they are commonly tax deductible. Some of the expenses you can claim include:

  • Advertising for tenants
  • The interest and fees you pay on your loan
  • Cleaning, gardening, maintenance and pest control.

See other things you can claim on the ATO website and don’t forget to keep relevant paperwork and declare all your rental-related income when you do your tax return.

Another thing to remember is, if your property is negatively geared—which simply means the interest and other costs you incur are more than the income your investment property produces—the loss can reduce the amount of tax you pay on your earnings at tax time.

If you sell your investment property down the track and make a profit, also note that capital gains tax may be payable. You can find out more in our article – What is capital gains tax?

Where to go for more information

Like most big investments, planning can play a big part in the returns you generate.

If you’d like additional pointers on being a landlord, you can read our article – A basic guide to renting out your property.

In the meantime, it may be worth speaking to your adviser, or if you don’t have one call us on 131 267 or use our find an adviser tool.

You can also request a call back from an AMP home loan specialist via our online tool if you’d like details about our range of home loans.

AMP has a range of home loans

Speak to an AMP home loan specialist to learn more about our competitive rates.

Request a call back

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

This information is provided by AMP Bank Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.

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