Article by Mozo
Are you set on getting a foot in the property door but are unsure of where to start?
While investing in your first property is exciting, there are plenty of hurdles to overcome, like saving up the initial deposit and choosing the right property. In this guide, we’ve rounded up some of the golden rules when it comes to investing in property for the first time.
Let’s run you through them:
While home loans used to be available to investors with just a 5% deposit, these days many lenders have tighter restrictions for investment loans with most requiring you to have a deposit of at least 10%. So when you factor in the cost of stamp duty and lenders mortgage insurance, you should be aiming for a deposit of 20%.
Alternatively, you could ask a parent or family member to go guarantor on your loan, which means you would be able to take out a loan with a smaller deposit. Obviously, the major advantage of having a parental guarantor is you can get into the market sooner. Just keep in mind, there are risks attached, as your parent is liable for the portion of their property they put up as security for the loan.
Read our tell all guide, for extra advice when it comes to saving a deposit.
Once you are on your way to having a solid deposit, you should do some research on websites like domain.com.au and realestate.com.au to understand what properties are worth in 2-3 suburbs.
When creating a shortlist of suburbs, look for locations that are close to transport, shopping centres and amenities. That way you’ll always be able to rent out the property for a good return and are likely to see capital growth. But make sure you steer clear of properties on a main road that don’t have easy access to transport.
When the time comes to start inspecting potential investment properties, as an investor you should put your own preferences to the side and look for properties with the potential for capital growth that are likely to attract tenants. The property doesn’t necessarily have to be close to the CBD, but as we mentioned it does need to be in a good location and close to facilities.
Unless you’re really confident you’re going to get approved, buying at auction comes with a high risk attached - you could lose your deposit if you can’t gain finance.
When you buy in a private sale, you’ll get a 5 day cooling off period, which gives you time for the bank to value the property and sign you off with final approval. Whereas if you go down the auction route and find the bank won’t approve you for the amount you paid for the property you could land yourself in a minefield.
You will lose your 10% deposit and on top of this the seller could also take legal action if they can’t sell the property for what you offered.
So those are the 5 golden rules of investing for first timers...