Why invest in property?
Australians are among the most active property investors in the world, with an average of one in every three new mortgages each month arranged for investors. Many of these investors are ordinary people with ordinary jobs earning ordinary incomes. So, why is property investment so popular?
Capital growth. Capital growth is the increase in value of property over time and the long term average growth rate for Australian residential property. Importantly, because property markets move in cycles, property values go through periods of stagnation as well as decline. This is why taking an investment view of at least 10 years is important.
Rental income. Rental income, also known as yield, is the rent an investment property generates. To calculate net yield, you need to deduct all the expenses (ongoing costs + cost of vacancy) from the annual rental income. You then divide that number by the property’s purchase price and multiply by 100. This will give the percentage yield.
As a general rule, more expensive properties may generate lower yields than more moderately priced properties. There may also be a direct, inverse relationship between capital growth and rental income. Those properties producing a lower rental yield may deliver greater capital growth over the long term.
Tax benefits. You may be able to offset against your taxable income any losses you incur from owning an investment property.
You don’t need a big salary to invest. If you are buying to invest, lenders will take rental income as well as your own income into their assessment. If you already own your own home and have some equity in it, you may be able to use this as a deposit, meaning that you may be able to buy an investment property without having to find any additional cash. If you don’t own your own home and feel you may never be able to afford one, buying an investment property may be a good stepping stone to one day being able to afford your own home.
How much money can I borrow?
We’re all unique when it comes to our finances and borrowing needs. Get an estimate of how much you may be able to borrow (subject to satisfying legal and lender requirements). Or contact us today, we can help with calculations based on your circumstances.
How do I choose the loan that’s right for me?
Our guides to loan types and features will help you learn about the main options available.
How much do I need for a deposit?
Usually between 5% – 10% of the value of a property, which you pay when signing a Contract of Sale. Speak with us to discuss your options for a deposit. You may be able to borrow against the equity in your existing home or an investment property.
How much will regular repayments be?
Go to our Repayment Calculator to give you an idea of what your repayments might be. Because there so many different loan products, some with lower introductory rates, talk to us today about the deals currently available.
How often do I make home loan repayments — weekly, fortnightly or monthly?
Most lenders offer flexible repayment options to suit your pay cycle. Consider asking for weekly or fortnightly repayments, instead of monthly, as you would make more payments in a year, which will shave dollars and time off your loan.
What fees/costs should I budget for?
There are a number of fees involved when buying a property. To avoid any surprises, the list below sets out all of the usual costs:
- Stamp duty — This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state and territory governments and also depend on the value of the property you buy. You may also have to pay stamp duty on the mortgage itself. To estimate your possible stamp duty charge, visit our Stamp Duty Calculator.
- Legal/conveyancing fees — Generally around $1,000 – $1500, these fees cover all the legal requirements around your property purchase, including title searches.
- Building inspection — This should be carried out by a qualified expert, such as a structural engineer, before you purchase the property. Your Contract of Sale should be subject to the building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building inspection and report can cost as much as $1,000, depending on the size of the property. Your conveyancer will usually arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees).
- Pest inspection — Also to be carried out before purchase to ensure the property is free of problems, such as white ants. Your Contract of Sale should be subject to the pest inspection, so if any unwanted crawlies are found you may have the option to withdraw from the purchase without any significant financial penalties. It may cost as much as $500 depending on the size of the property. Your real estate agent or conveyancer may arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees).
- Lender costs — Most lenders charge establishment fees to help cover the costs of their own valuation as well as administration fees. We will let you know what your lender charges but allow $600 to $800.
- Moving costs — Don’t forget to factor in the cost of a removalist if you plan on using one.
- Mortgage Insurance costs — If you borrow more than 80% of the purchase price of the property, you may also need to pay Lender Mortgage Insurance. You may also consider whether to take out Mortgage Protection Insurance. If you buy a strata title, regular strata fees are payable.
- Ongoing costs — You will need to include council and water rates along with regular loan repayments. It is important to also consider building insurance and contents insurance. Your lender will probably require a minimum sum insured for the building to cover the loan.