3. How well do you know your cash flow?
Buying an investment property calls for more than an upfront deposit. You also need to be able to manage other purchase costs such as stamp duty and legal fees, as well as ongoing expenses such as rates, insurance, repairs and maintenance and loan repayments.
Rental income will help to cover part of the regular costs. And thanks to negative gearing, you can claim any annual loss on the property as a tax deduction – as long as the place is tenanted or available to rent. This makes owning an investment property more affordable.
We've created a Guide for beginners that covers the steps you need to take to get into Property Investment. It covers your planning stage, ensuring you have enough for a deposit, caluclating costs and more.
However, you still need to be able to pay for these expenses as they arise.
That’s why it’s important to get to know your cash flow.
Add up your income, compare it to the regular costs of owning your investment property, and allow some wiggle room for unexpected expenses like repairs.
Your lender will check that your cash flow can comfortably handle owning a rental property, so it pays to do this review yourself before applying for a loan. Your Mortgage Choice broker can help crunch the numbers.
4. Does your income shape up?
There’s a good reason why lenders like to see evidence of your income: Your rental property may experience periods of vacancy, and that’s when your regular income will need to cover the repayments on your investment loan.
If you work for an employer, several of your most recent payslips or a contract of employment will usually be sufficient proof of income. If you’re self-employed, you’ll typically need at least your two most recent tax returns as evidence of annual income.
You can use our borrowing capacity calculator here to get an understanding of how much you can borrow with your income.
5. Will an investment property fit your future plans?
Residential property is usually regarded as a long term investment. Ideally, you should be prepared to hold onto the place for at least five to seven years.
This means a property needs to fit with your future plans. Sure, none of us can predict exactly what lies around the corner, but having a strategy for your rental property makes it easier to understand the role it will play in your future.
Taking on an investment loan doesn’t need to be scary, it’s just a matter of knowing your situation and crafting a strategy around it. Talk to your local Mortgage Choice broker today.