Home Truths /How to invest in property: A starting guide

How to invest in property: A starting guide

5 min read | 23 Jun 2022 updated 22 June 2023

How to invest in property A starting guide article
How to invest in property A starting guide article

Property investing is all the hype

But if you took this at face value, you'd think that buying an investment property is a bullet-proof way to make money. If only making money was that simple… While the rumours are that the Australian property market is booming and full of opportunity, you have to be wary that this can also provide a false sense of security if you have never invested before.

Fun fact: According to the ATO, in 2020-2021¹, a whooping 2.2 million Australians owned rental properties. We can clearly see that investing in properties was a dominating type of investment.

Are you wanting to join the large number of Aussies who have already made property their investment? Awesome.

There is, however, more to it than simply investing in a property you want. To start off, we will give you some useful information, so you can be ‘property-savvy' when investing!

A beginners guide to property investment

To kick things off, we’ve put together an initial collection of insights, tips and tricks, so your first steps into real estate are supported by some solid foundations.

Because when it comes to getting started in property investment, the old saying “failing to prepare is actually preparing to fail” definitely applies.

Decide with your head, not your heart

Love at first sight does not apply when looking for an investment property. You won't be living in the investment property, so it doesn't have to be your taste! Instead, the investment property should be attractive to the right kinds of tenants.

So what do renters value? Location! An ordinary property in a desirable location is hot property to renters. You may ask, what is a desirable location? That's a great question, and it differs from renter to renter, however, areas near the beach or the CBD or in close proximity to cafés, shops, restaurants, parks, schools, and transport are considered desirable.

Prioritising the location of the property will deliver you a much better rental return overall than a great property in a so-so location.

That's not to say that the quality of your property isn't important. Ideally, you'll want yours to be one that will remain in strong, continuous demand, and not just by tenants but owner-occupiers if and when you sell one day. Remember, you can always fix up a property if you need to, but you can't do anything about a location that's not working out.

Keep return on investment on your mind

Hot tip: Keep to areas where rental demand is high, and the vacancy rate is low. The sooner you can rent out your property, the better! Owning a property that struggles to get tenants can end up costing you big time!

Make sure to get the kind of long-term tenant who can afford an increase in rent once in a while and not the kind who will move out as a result.

And don’t buy primarily for depreciation purposes. The numbers don’t add up, especially when buying off-the-plan. Buy for growth potential and rental yield, and if there happen to be tax benefits, consider them an unexpected bonus.

Understand what your cashflow will look like

Ensuring you're on top of the unexpected aspects of incomings and outgoings is a common difficulty amongst first-time investors. In fact, it's one of the main reasons the majority of property investors never own more than a single investment property.

Understanding all the costs associated with owning an investment property can be very confusing. Before you purchase, it's important to understand not just the upfront costs, but the ongoing costs. Like any type of investment, you want to know exactly what you're getting yourself into financially, so you will be able to afford all the costs in the long run.

Having to sell your way out early can leave you in a worse position than when you started. So put your quest for long-term capital gains aside for a minute and work out how much income your investment will generate in rent to be sure it will more than cover your expenses.

And if there's a period that it won't (you don't have a tenant or there are unexpected maintenance costs), make sure you have money available to cover any unforeseen shortfalls.

It's good practice to underestimate your income and overestimate your expenses. As a rule of thumb, allow about 10% of the property’s value for costs such as rates, land taxes, insurance, maintenance, and agent’s fees.

And finally, calculate your borrowing power with Athena.

Quick tips before you buy an investment property

Know your budget

Make sure you work out your expenses and balance them against your total income and assets to know exactly how much money you have leftover to invest.

Once you’re clear on what you can spend on a property, start living your budget. It’s the best way to know you’ll be able to service your loan after you buy, plus it allows you to better understand how to plan for other expenses in the future.

Get pre-approval

Pre-approval occurs when a lender agrees to let you borrow a certain amount of money in principle to buy a property. This may not necessarily be a specific property, as you could still be looking for the right place. However, pre-approval allows you to bid with a fair bit of confidence, as the lender is satisfied with your strength as a borrower. Once you’re close to buying, your lender will go through the full process towards granting you with unconditional approval.

Three questions to make sure you know your “why”

  1. What are you hoping to achieve when buying an investment property?

  2. What are your financial goals? And what does this mean for your future finances?

  3. What is my investment time frame?

Make a plan, work out the steps you need to be landing along the way, know how to check how you’re doing, and you should find the whole journey much less overwhelming because you’ll always feel in charge.

Do your research

Without letting it take over your life (after all, it’s only real estate!) do your research on property market trends and work out exactly which type of loan and which lender will be best for your needs. That way, when the time’s right, you can feel confident you’re making a savvy investment decision!

Set up your investment strategy

Once you have an outline plan you can start thinking about different property strategies.

We've got a few other articles that can help you understand how to unlock equity, negative and positive gearing and other home loan strategies.

Purchase costs

There are a number of expenses you need to have finance to cover beyond just the purchase price:

Stamp duty

Calculated on the purchase price of the property, and varies across states and territories.

Building and pest inspections

It’s vital you get some experts in to evaluate the physical state of the structure to help you arrive at a suitable offer that properly reflects its value.

Conveyancing/legal costs

Both vital and unavoidable, these can include the property and title search, reviewing the strata body corporate records, checking and exchanging the contract of sale, arranging the payment of the stamp duty and overseeing the transfer of the title to you.

Mortgage establishment fees

With certain lenders, you’ll pay various fees to establish your mortgage such as application, valuation and settlement fees. Except at Athena. Seriously, Athena has zero home loan fees. Why should you be charged for being a customer?

Title transfer fee

A state/territory government fee for transferring the property title from the seller to the buyer.

Mortgage registration fee

Another state or territory fee that registers the home loan, so a future buyer can check whether a property’s had mortgages on it before and what their current status is.

Ongoing costs

Make sure your calculations also factor in the costs you’ll have to cover in addition to your ongoing loan repayments:

  • Council rates

  • Tax on your rental income

  • Insurance (landlord, building and contents)

  • Repairs and maintenance

  • Body corporate/strata fees

  • Property management fees

  • Utilities

Frequently Asked Questions

What is the difference between a home loan and an investment home loan?

The first is for people who want to buy a home to live in as owner-occupiers, while the other is for those who want to buy a property they can rent out for an income that helps pay off the loan.

Lenders often associate a bit more risk with investment loans because it’s not uncommon for investment properties to sit vacant for a while, which means the owners can’t use rent to make their mortgage repayments.

On top of that, there are also additional costs that don't apply to homeowners, like property management fees from real estate agents, and landlord insurance.

That's why investment loans sometimes come with stricter conditions and higher interest rates.

How little can I put down on an investment property?

Athena’s minimum loan amount is $100,000, while the minimum deposit amount is 20-30% depending on where you are buying.

If you're looking for a loan where you require less deposit, our Athena Select service may be able to help you out. Read more about Athena Select here.

Should I buy an investment property?

It's a big commitment that's full of exciting possibilities. If you'd like to talk your ideas and questions through with our Investor Concierge home loan experts, please get in touch or book an appointment.

Always talk through any Capital Gains tax or other tax implications before you apply for an investment loan with a financial advisor.

They're available 5 days a week.

Text - 0429 333 555

Call - 13 35 35

Or see how much you could borrow, repayments and interest rate in a few mins here with Athena.

You’ve got nothing to lose except your home loan!

Start saving a whole lotta time and money

Athena acknowledges the traditional owners of the land on which we gather the Gadigal people of the Eora nation. We acknowledge that sovereignty was never ceded and respect their continued and continuing connection to this place.