As long as you know the reason for buying an investment property and have your budgets sorted, things can work out easily. There are few steps involved in this process:
1. Financial borrowing capacity
2. Household budget
3.Expectations from the investment property
4. Concerns regarding the investment property
5.Tax deductions and stamp duty
Lets go one by one discussing these:
Financial borrowing capacity:
This is all about how much a financial institution is going to lend you based upon your current incomes, expenses ,deposit for the property and of course the lending criteria of the lending institution. People often have vague idea about the equity in their property. Once a borrowing capacity has been done by a lender or a mortgage broker, then it is easier to see where do you stand in terms doing things. Bigger budgets don't always mean that you can buy a better property .
We all have commitments to things we do everyday. Household expenses such as groceries, bills, mortgage or rent, weekend dining, shopping, travelling and some more are our regular debits in the bank account. Once you know how much you can set aside after sorting all these , then you know much cost you can easily bear for running an investment property. All investment properties are not cash flow positive or negative all the time. Knowing your share of cost is the beast way to stay under your budget.
Expectations from the investment property:
People often think that they just want to buy a property because someone else did it or they think they know everything about it. Investment property is a business decision , so make sure you are very clear about the outcome . Some of the expectations people have are: Capital growth , rental growth, rentability etc.
If you are not clear about your expectations , then you will be buying a wrong property for wrong results. Some areas offer high capital growth while others offer high rents.
Concerns regarding the investment property :
We all have some sort of concerns when we want to do something new or try to achieve something. Having realistic concerns is good but being overly concerned won't help you to make a decision. Some of the concerns which investors have are : No tenant or high vacancy rate, no capital growth or negative capital growth, high maintenance costs, low tax deductions, loss of income or job to support your share of contribution to investment property. These concerns can be overcome by having the right investment property with you and with proper planning .
Tax deductions and stamp duty:
Investment properties offer tax deductions for the expenses directly related to the investment property . For example: Interest paid on the investment loans, council rates, landlord and building insurance premiums, property management fees and repair and maintenance work done on an investment property. Stamp duty is another thing which can reduce or increase your cost to do things. If an investment property is purchased as a house and land option, then the stamp duty is payable on land only vis a vis a built up property is subject to full stamp duty on the contract price of the property . Different states in Australia have varied stamp duty structure . So some might appear cheap and other might look expensive.