Preparing your finances for property investment

By Greg Bell

When you're thinking about investing in a property – whether it's a residential space you plan to rent out to individuals, or a commercial property a business can occupy – there's a lot to know about the process. First and foremost, you need to make sure you're financially capable of not only qualifying for a loan, but also managing the property on an ongoing basis.

First things first

The most important thing to know when buying an investment property is that lenders will typically have far more stringent requirements about how big the deposit will have to be, versus what you might expect when buying a personal residential property. For instance, it's now common for lenders to ask for a deposit of 20% – or more – if you are buying a residential investment property, and it can be at least double that amount for commercial properties.

You may also be asked to prove that you have built up sufficient savings over the past few months to show that you are capable of putting together relatively large sums on short notice. Along similar lines, you will likely have to show that you have a strong source of outside income – that is, not associated with investment properties – and a stable employment situation.

Understanding your credit

Just like any other financial transaction of this type, you will also have to bring a strong credit rating to the table, especially if you want to qualify for the best possible loan terms. That may require at least a few months of work to pay down your outstanding debts, make payments on time and otherwise get a better handle on your overall credit portfolio.

These efforts might include consolidating your existing balances – especially if they have high interest rates – into a lump-sum loan that has a lower rate and is easier to pay down on an ongoing basis. However, this can also impact your debt-to-income ratio and lenders might have varying views of such a transaction.

Know what to avoid

One of the biggest mistakes first-time investors make when they're getting into the market – often because they're so excited to get started – is that they don't do the math to figure out what they can reasonably afford. Again, it's more than just putting together a worthy deposit – there are plenty of financial considerations on an ongoing basis, even if you find a reliable tenant in short order.

These include ongoing maintenance costs, but also property taxes, capital gains taxes and more, all of which can add up quickly if you're not conscious of them.

It's also a good idea not to collateralise any non-commercial property you already own (such as your home) as part of the deal if you can avoid it. Commercial property investment isn't always a sure thing, and you don't want to put your residential property in peril if you hit a rough patch.

Work with experienced experts

Just like buying a home for yourself, there's probably a lot first-time investors don't know about the ins and outs of buying a commercial property. For that reason, it's critical to rely on industry experts who have proven track records of success to guide you through the process. At Ray White Surfers Paradise, we're here to help you at every step, and make sure you find an investment property that fits your needs and sets you up for long-term financial success. Give us a call today to learn more about how we can help.

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