18 April 2022

A quick-start guide for beginner property investors

Emma McLaren

Australia is a nation known for its real estate passion, with investors ranging from first homeowners looking to secure the roof over their family’s heads through to landlords with dozens of residential properties in their portfolio. With over 2 out of 3 Australians owning their home (mortgaged or not) as of 2018, it’s safe to say we’re a property-hungry market.

If you’ve been thinking about investing in property, you may feel overwhelmed when it comes to sorting through the data, perspective, shock headlines and options. Investing in a property is a significant financial decision for most. It makes sense that building background research is a process that takes time.

In reality, learning how to invest in property (and the common pitfalls to look out for) doesn’t have to feel impossible. By arming yourself with the insights you need, you can set yourself up to make a wise investment in your financial future.

Are you looking to take the plunge into the deep end? Here’s our quick-start guide for the key areas you need to pay attention to before investing in your first property.

Understand your financial position

Understanding your financial position isn’t as simple as checking the figure in your bank account. A range of factors go into the mix when applying for a home loan. These include your income, expenses, household members, debts, the size of your deposit, the area you’re looking to purchase in and more.

Whether or not an investment property is an affordable option for you depends on your position. By speaking with a lender, you can get a sense of your borrowing capacity and make a plan accordingly. They can also highlight ways to increase that capacity, giving you insight into the long term.

Secure pre-approval

Firstly, pre-approval isn’t the same thing as approval for a loan. New entrants into the property market can often find this part of the process unclear, so understanding the difference is essential.

Pre-approval comes in the form of an indication from your lender that they’re willing to lend you a certain amount of money. You can secure pre-approval either directly from a lender or through a mortgage broker. Working with a mortgage broker can open up more options in terms of varying lenders for those who aren't quite sure about their borrowing capacity. Not all lenders have the same risk appetite, and some are more open to ‘unusual’ applicants than others. For example, if you’re self-employed or working as a contractor, working with a broker can highlight which lenders are more likely to respond favourably to you.

A pre-approval is in no way legally binding. Neither you nor the lender are required to commit to a full loan. However, applying for multiple pre-approvals can be risky, as lenders need to check credit records each time you apply. If there are multiple inquiries on an account, the likelihood is higher that they’ll then refuse your application.

Clarify your investment goals

No two approaches to the property market are the same. What works for one investor could be a lifetime of headaches for another. By clarifying your investment goals, you’ll be able to identify what kind of property meets your investment criteria.

Property investment rewards different types of buyers, with both short-term and long-term outcomes achievable. Short-term property investors may be more interested in ‘flipping’ homes, investing in renovations to significantly increase the value of their property. Investors looking for more passive approaches may be more likely to buy a property, place a tenant, and watch its value grow year on year.

Understand whether you’re looking to make a short-term or long-term investment, considering all inherent costs and risks within each approach. Only then are you equipped to truly enter the property market with a clear vision for what you need.

Evaluate your risk appetite

Risk appetite relates to the amount of risk an investor is comfortable with to achieve their objectives. Some people are risk-averse, meaning they’re reluctant to take risks to make a gain. Others have a higher risk tolerance, willing to take some short-term unknowns with the goal of making a long-term win.

Several factors impact our individual risk appetite. Your financial situation and investment goals are most likely to contribute to this. If you’re cash flow positive week to week, your risk appetite may be higher. Your risk appetite may be lower if you’re looking for an investment property to return a neutral or positive cash flow outcome each week.

Run the numbers

Now for the boring part of the process: creating your budget. This isn’t as enjoyable as scrolling through home listings online, but it’s a necessary part of the process. Budgeting will help you understand how much you can afford regularly. By balancing your income and expenses, you can identify opportunities to stretch your resources or spaces where you need to be conservative.

Budgeting isn’t just about looking at the purchase price. Consider other costs, such as stamp duty, transfer fees, legal fees, account fees, property maintenance costs, rates, insurance, etc. Many of these costs can be offset against an investment property’s income to reduce your taxable income, but it’s essential to have a clear picture of what’s coming in vs. what’s going out.

Build a purchase plan

With your goals, budget, pre-approval, and an understanding of your risk appetite in hand, you can build a purchase plan.

A purchase plan’s foundation is its criteria. Define what it is you’re looking for based on your personal needs and make a shortlist of properties that match those needs. Once you’ve found a property you believe is the right fit, it’s time for more due diligence. Research the area, get an appraisal from your lender, check for any particulars on the block, and review the long-term growth potential.

Once you’re armed with that information, it’s time to make an offer.

Inform yourself

Property markets in Australia can change rapidly. Stay up to date with what’s happening in your area of interest and across the board to make decisions from a place of informed context.

Keep up to date with property news and consider recent comparable sales before commencing your hunt. That way, you’ll be able to pay a reasonable rate, not an inflated purchase price, for your investment property.

Keep your head in the game

Investing in property shouldn’t be emotional. This isn’t about your dream family home. It’s about your financial future.

Keep your goals at the forefront when you’re in the property market. They’ll help you focus on the long-term, evaluating each property against your defined criteria until you find a match.

The work you do today can pay off handsomely for yourself in the future.

Other Articles

  • 10 October 2019 - Adrian Atelj
    4 things first home buyers need to know
  • 9 October 2019 - Adrian Atelj
    4 tips for planning success when selling
  • 18 December 2019 - Vic Lorusso
    4 Tips to Consider When Selecting a Builder
  • 19 April 2022 - Danielle Redford
    Key questions to ask before buying a home
  • 15 December 2019 - Adrian Atelj
    8 Must Haves When Choosing A Rental Property
  • 19 April 2022 - Danielle Redford
    How to make a winning rental application
  • 16 October 2019 - Adrian Atelj
    8 tips for negotiating with selling agents
  • 7 October 2019 - Adrian Atelj
    A guide to buying at auction
  • 5 October 2019 - Vic Lorusso
    Adding a pool: will it add value?
  • 4 October 2019 - Adrian Atelj
    Are property managers worth the cost?
  • 24 November 2019 - Adrian Atelj
    Beginner’s Guide to Starting a Veggie Garden
  • 25 March 2022 - Danielle Redford
    Breaking a Lease with your Landlord Early
  • 18 April 2022 - Emma McLaren
    Understanding your home’s useable equity
  • 9 May 2022 - Danielle Redford
    How to flip property in Australia
  • 15 October 2019 - Adrian Atelj
    Gaining the mindset of a successful investor
  • 5 April 2022 - Danielle Redford
    Homeownership in 2022: Costs of Buying a House
  • 9 October 2019 - Vic Lorusso
    Hot interior styling trends for 2020
  • 12 March 2022 - Danielle Redford
    Your guide to different house types
  • 12 March 2022 - Danielle Redford
    Conveyancing: a cheat-sheet guide
  • 19 April 2022 - Emma McLaren
    How long does it take to build a new home?
  • 12 March 2022 - Danielle Redford
    How much deposit do you need to buy a home?
  • 9 May 2022 - Emma McLaren
    How much does a new kitchen cost?
  • 12 March 2022 - Danielle Redford
    What's the average cost to build a home in 2022?
  • 9 May 2022 - Danielle Redford
    The value of building an extra bedroom
  • 5 April 2022 - Danielle Redford
    How to make the most of negative gearing
  • 19 April 2022 - Emma McLaren
    How to buy property through private sale
  • 2 October 2019 - Adrian Atelj
    How to choose an investment property
  • 9 May 2022 - Danielle Redford
    How to determine the value of a home
  • 6 October 2019 - Adrian Atelj
    How to get your property ready for sale
  • 2 October 2019 - Adrian Atelj
    How to increase your return on investment
  • 5 April 2022 - Emma McLaren
    Stress-free interstate migration
  • 4 January 2020 - Adrian Atelj
    How to Negotiate a Lower Rent and Save Big
  • 24 December 2019 - Vic Lorusso
    How To Use Plants for Shade and Privacy
  • 28 November 2019 - Vic Lorusso
    Is a Low Deposit Loan Right for You?
  • 12 March 2022 - Danielle Redford
    Is It Worth Hiring a Buyer's Agent?
  • 7 October 2019 - Adrian Atelj
    How to style your home and wow your buyers!
  • 12 March 2022 - Danielle Redford
    Making an offer on a house in 2022
  • 16 October 2019 - Vic Lorusso
    Making the transition from rent to mortgage
  • 9 October 2019 - Adrian Atelj
    Market falling? Here’s what to do
  • 4 November 2019 - Vic Lorusso
    Mortgage Cashback: What’s the Catch?
  • 19 April 2022 - Emma McLaren
    How to negotiate a home purchase price
  • 15 October 2019 - Vic Lorusso
    Nine top tips for buying off the plan
  • 1 November 2019 - Adrian Atelj
    November Monthly Market Overview
  • 18 April 2022 - Emma McLaren
    Your Complete Pre-Settlement Checklist
  • 19 April 2022 - Danielle Redford
    How to prepare your home for the rental market
  • 24 December 2019 - Adrian Atelj
    Propagating Indoor House Plants with Water
  • 12 March 2022 - Danielle Redford
    Rent-to-own your own home schemes
  • 9 May 2022 - Danielle Redford
    Checklist for a rental inspection
  • 10 November 2019 - Adrian Atelj
    Storage Hacks for Babies and Toddlers
  • 25 March 2022 - Emma McLaren
    Using Super to Buy a Property
  • 19 April 2022 - Danielle Redford
    Essential tools for DIY home renovations
  • 16 October 2019 - Adrian Atelj
    The attraction of apartment living
  • 5 October 2019 - Pat Carbone
    The home buyer’s guide to stamp duty
  • 9 May 2022 - Danielle Redford
    How to carry out an end of lease cleaning
  • 14 October 2019 - Adrian Atelj
    Tips for keeping pets safe outside your home
  • 26 December 2019 - Adrian Atelj
    Top 10 Indoor House Plants
  • 3 October 2019 - Adrian Atelj
    Top tips for picking your ideal suburb
  • 19 April 2022 - Emma McLaren
    Which Property Type Should You Buy?
  • 9 May 2022 - Danielle Redford
    What you need to know about stamp duty
  • 19 April 2022 - Danielle Redford
    What’s the purpose of a sunset clause?
  • 10 October 2019 - Adrian Atelj
    Understanding supply and demand
  • 25 March 2022 - Emma McLaren
    What is a Granny Flat?
  • 9 May 2022 - Emma McLaren
    What is a private rental?
  • 19 April 2022 - Danielle Redford
    Buying a Property Under a Private Treaty Sale
  • 12 March 2022 - Danielle Redford
    Property Valuations and How They are Calculated
  • 14 October 2019 - Adrian Atelj
    What to look for when inspecting a property
  • 9 May 2022 - Emma McLaren
    A Guide to building a granny flat
  • 27 November 2019 - Pat Carbone
    When is the Best Time of Year to Sell?
  • 9 May 2022 - Danielle Redford
    I want to sell my home; where do I start?
  • 6 October 2019 - Vic Lorusso
    Which property costs are tax-deductible?
  • 10 October 2019 - Adrian Atelj
    Why selling your home is taking longer
  • 183 of 183 articles