‘Buy with your head, not your heart’: What to consider when investing in property

If you’re a first-time investor or it’s been a long time since you last bought property, the property hunt can be a daunting prospect. Like any other major purchase, solid preparation helps to ensure a smoother journey.

“Think of it like travelling to a foreign place – most of us like to know what we’re wandering into so we can best prepare ourselves,” says Stephen Harper, Bankwest’s executive manager of home lending.

“Take the time to understand the property market you’re considering entering, and then take stock of your personal situation.”

First things first: Know your budget

The most important first step in considering property investment is understanding your personal financial situation, Harper says.

“Everyone’s personal circumstances are unique to them, so it’s a good idea to take the time to consider what you can afford, while still having enough to live life in a way you enjoy,” he says.

Lending Loop broker Stephen Watson encourages would-be investors to think not only about their current circumstances but their plans for the medium and long terms.

“For example, you might be a first-home buyer, or just recently married and need to think about if you’re going to have children and maybe go down to one income for some time,” he says.

Buy with your head, not your heart

Buying a property is often the most significant financial decision a person makes in their life and Harper says it’s important to treat that situation with the respect it deserves.

“It’s easy to become emotionally invested and involved when making such a large financial decision, and that can sometimes cloud our judgement,” he says.

“This is when it’s important to buy with the head, rather than the heart.”

Watson says investors should focus on the financial return.

“What’s really important for investors to understand is that they’re buying this property to essentially make money at the end of the day,” he says.

This means buyers may need to look beyond 20 kilometres of where they live in order to achieve their investment goals.

Understand the upfront and ongoing costs

Apart from regular mortgage repayments, there are a host of other costs associated with buying property and becoming a landlord, and you’ll need to be aware of each of these before you commit to a loan.

Expenses can include lender’s mortgage insurance and bank settlement fees. Watson says it’s worth noting that a broker may be able to secure a reduction or waiver of these fees.

Other costs include pest and building inspections, conveyancing fees, home insurance, body corporate fees for strata property, council rates, land tax, maintenance costs and property management fees.

If you’re using a buyer’s advocate to secure a property – a strategy Watson recommends – you’ll also need to pay for their services.

Do thorough research

Watson encourages investors to use data to narrow down the best locations within their budget.

Important things to note include the split between owner-occupiers and renters in any given area, population growth, the nearby amenities – such as public transport, shopping centres and schools – and the vacancy rates and rental yields.

Choose a lender that can meet your needs

From flexible repayment options and interest calculated daily to offset accounts and redraw facilities, it’s important to choose a lender with the features and services to suit your circumstances.