Property Investing Guide 2023

Key Takeaways:

• Now is a great time to invest in property!
• Know your budget and the reasons why you want to invest.
• Research property locations and ensure it is a solid investment.
• An investment loan is an excellent product to finance your investment.
• You could also access the equity in a current property or seek a guarantor.
• You will need to pay capital gains tax on any profit made when you sell the investment.

Do you understand where Australia’s property market is heading in 2023? After a shocking surge forced property prices to skyrocket in the wake of the pandemic, we are finally reaching the peak!

Property values are now levelling and will begin an eventual decline. This situation means that investment properties are ripe for the picking and can make financial sense as an investment opportunity.

How can YOU invest in property and what should you be wary of to avoid making investor mistakes?

Read our Property Investing Guide for 2023 and discover how you can successfully invest in property in Australia.

Is it a good idea to invest in property in Australia?

Refinancing occurs when you change your home loan, usually to get a better deal. Perhaps there is a new loan with a great interest rate tempting you to switch?

You could save money on your monthly repayments if you refinance at the best time. Although, every home loan is different, and every borrower possesses a set of unique circumstances.

Why should I refinance my home loan?

Now is a fantastic time to invest in Australian property! It is never too late to get on the investment property ladder and begin a new journey to make some serious cash!

Demand for properties is still high, boosted by the government’s extended incentives for first-home buyers.

However, higher property prices mean that many people may never be able to own their own homes. They may continuously rent a home for their lifetime, which indicates a great potential benefit for investors to capitalise on.

The scope of the property market has changed, so previous assumptions made about key investment areas may no longer apply. For example, with many workplaces continuing to work from home, units inside city centres of capital cities are not necessarily prime hotspots.

A tenant who works from home may place greater value on living in a more tranquil location. However, they may need a bigger house to live in than previously, such as an office or workspace.

Keeping ‘new normal’ practices and changes to the workplace in mind, investing in property is a great idea.

Speak to a Lendstreet expert broker about which investment loans will suit your circumstances. We secure a fee from the lender, so our broker services are completely free for you to use!

Top ten tips to avoid property investing mistakes

Before taking the leap and investing in property, read our top ten tips to avoid property investing mistakes!

1. Set your own goals

Be clear about what your aims are before considering property investments. Are you hoping to fix and flip a property, selling it soon after to profit from its increased value?

Or, do you want to rent out the property for several years as a long-term investment? Perhaps you aim to live in the property yourself in years to come or eventually sell it?

Know exactly what you aim to achieve before spending any money at all. The initial goals that you will set will inform your choices when looking for a good investment.

2. Check your credit score

Do you know your credit score? With the average Australian’s credit score surpassing 700 points, understanding your credit history is key to property purchase preparation.

Your credit score will reflect any positive and negative movements in debt repayments. It will also record all debts granted and owed.

A low credit score will suggest to lenders that you are not financially responsible. Lenders may deem your application risky if you have had previous payment defaults.

Or, if you have borrowed vast sums of money, lenders may think you cannot afford any further debt. Your broker may still be able to find you an investment property loan, although stricter terms and higher rates may apply.

A good credit score will indicate to lenders that you are responsible with money. Lenders will feel confident that you can and will repay the debt to them. Favourable rates and terms may be open to you based on this judgement.

Take control of your credit history and start to make improvements to raise your credit score! It is never too late to improve your credit score and it could significantly affect loan approval.

3. Location, location, location!

Which property markets are you interested in? The location may be less important if you are looking for a fix and flip property in capital cities.

You will be focused greatly on the potential to renovate the property in a short period before selling. However, remember to be mindful about key amenities and transport links to appeal to future buyers!

The location of a long-term real estate investment should be in an area where rental properties are in high demand.

You may want to buy a property close to where you live so that you can keep a close eye on it. Although, seeking the services of a property management company eliminate this requirement and allow you to search a wide location, including the city centre.

What if you plan to live on the property in the future? You will need to choose a desirable location that you will want to live in eventually. This may mean that you spend a much higher sum on your property investment to buy the dream location.

4. Research plenty of properties

What type of real estate investment do you want to buy? The answer to this question will depend deeply on your goals and overall investment aims.

If you want to make money from the property through renovating, you may seek a rundown property with great potential. You can profit tens of thousands of dollars by renovating the right property and achieving accelerated growth.

If you are looking for a property to rent in the long term, a tenant should want to live there! The property should be close to great amenities and ready to move into.

Although, if you plan to rent the investment before living in the house yourself, you should research further. Ensure that you would be happy living there in the future, but that it will be popular with tenants.

5. Set your budget

How much do you want to spend? Or, should that be how much CAN you spend?! Using our Budget Planner can help you to set a clear budget for your financial circumstances.

Setting a clear budget and determining all relevant costs and fees is important for a successful investment. Jumping into a property purchase without considering all financial implications is a seriously unwise move!

Total up the amount of deposit you can afford to part with and see how much you could borrow. Use Lendstreet’s Borrowing Power Calculator to discover how much you could borrow for a home loan purchase.

6. Be aware of stamp duty!

Stamp duty is a tax payable when you buy a property. The amount you pay varies from state to state, as well as the value of the property. Use Lendstreet’s Stamp Duty Calculator to see how much stamp duty you will have to pay!

For example, when purchasing an investment property valued at $800,000 in NSW, you will need to pay $31,616. This amount is your total stamp duty and relevant fees, such as the title search fee.

First home buyers in NSW may be exempt from paying stamp duty in some circumstances. However, you must intend to live in the property after sale completion.

Unfortunately, there are no stamp duty exemptions or concessions for investment properties.

7. Remember other buying costs!

It is easy to think that your deposit and stamp duty are the only costs to factor into your spending plan. However, there is a range of other expenses to consider

1. Conveyancing fees
2. Building inspection fee
3. Removing costs
4. Pest inspection fee
5. Insurance (including landlord insurance)

8. Ongoing costs

Once you have bought an investment real estate and tenants have moved in, you still have ongoing costs to consider!

You should firstly maintain a contingency fund worth several months’ loan repayments for the property. This is in case a tenant defaults on rent repayments or you experience a period where the property is untenanted.

If a tenant fails to pay their rent, the cost to pay the loan falls to you. Instead of experiencing this as a shock, prepare for the worst that could happen.

Keep a fund to the side to cover these costs, factoring the amount into your monetary investment total.

It would be best if you also considered the following ongoing costs

1. Strata fees
2. Council rates
3. Water rates
4. Repairs
5. Property maintenance
6. Property management costs
7. Advertising costs
8. Landlord insurance

9. Do you need a property manager?

What benefit can a property manager bring you? A property manager will be able to take care of the day-to-day running of the business. They may be able to find you a tenant and vet the tenant’s profile.

If there is a problem to report, the tenant will contact the property manager, not you. You will be free to work your day job or manage other investments.

The property manager will only contact you with problems if repairs or maintenance are required. They will charge a fee but can take away a great deal of stress from running your property investment!

10. Remember WHY you are investing

If you are investing in property to make money, ensure emotions are not involved in any decision-making process!

Let your head rule your heart and make a wise financial decision based on potential capital growth or accelerated growth. If renting, remember that cash flow is important, so you should aim for a consistently high rental yield.

Never become emotionally involved in your property investments. Engaging the services of a property manager can help you draw a line between yourself and the property.

How can I invest in property in Australia?

Begin your journey to investing in property by speaking to an expert broker at Lendstreet!

We can help explain the options you have open to you and the types of finance available. Our FAQs are the perfect starting point to understand how we can help you invest in property with good house prices.

If you need finance to pay for a large portion of your property investment purchase, you will need an investment loan. We can find you the best investment loan deals from a broad set of reputable lenders!

What are investment loans?

Investment loans can finance your investment property purchase. An investment loan can be an expensive source of finance, much more costly than a home loan for residential purposes.

Investment loans tend to come with shorter loan terms than home loans. You may need to agree to loan terms of either five or ten years to pay back the finance.

Securing an investment loan should be straightforward if you are in a strong financial position with high borrowing power. Some lenders offer investment loans up to 95% of the property value, depending on your circumstances.

However, you may struggle to achieve approval if your credit history or borrowing power is poor. There are other methods to finance the investment that are considering.

Can I use equity to finance a property investment?

Using the equity in your home or another investment property is a simple way to secure finance for a property investment.

The equity in a property is its market value minus any debts or loans owing that are secured on the property.

So, if your home is valued at $800,000 and with a $120,000 home loan owed, your equity is $680,000. You could apply to access this cash out of your home to pay fully for an investment property.

Before taking this step, however, assess how much repayments will cost you monthly against the investment rent you will receive. Any property investment must make financial sense and not cost you money!

Our expert brokers at Lendstreet specialise in equity release loans and refinancing. We can help you decide which method to raise funds suits your financial situation.

Additionally, you may be able to apply for an investor guarantor loan. This involves a friend or family member allowing their home to be secured against your investment loan.

Can I make profit from property investing?

If you make the right decision at the right time, you can make money from investing in properties!

If you want a regular profit from your rental return, you can use the rent as a stream of income. The median house price is one of the most important factors to calculate competitive rental prices. The amount deemed a profit would be what is left after the loan repayment and expense have been deducted.

Some property investors try to keep their loan repayments as low as possible by securing an interest-only investor loan.

Although no money is deducted from the amount borrowed, the lender’s interest is paid. You will be left with a hefty sum from your rental return at the end of each month.

This method works by relying on capital growth and rising future prices for your property. You can still make a sizeable sum once you sell the property, even though you have only paid the interest on the loan.

When fixing and flipping properties, a profit will be made from accelerated growth due to the improvements made. However, remember that capital gains tax must be paid on any profits from your investment when you sell.

What is capital gains tax (CGT)?

Capital gains tax is the tax payable on any profit you sell an investment property.

If you sell an investment property, you will make a net capital gain and need to pay tax on the profit. If you have not made a profit on the investment property, you have made a net capital loss. This can be carried over and made as a deduction in a subsequent year

How do I calculate capital gains tax?

Capital gains tax takes into account the cost base of your investment property. This means that incidental costs such as stamp duty and legal fees are factored into the ‘cost’ of your property.

These are capital expenses and can be included when totalling the cost base of your investment property.

However, if you have owned a property for over 12 months, you can request a discount. You will only need to pay capital gains tax on 50% of the profit made, saving you a substantial sum!

Pros and Cons of property investing

What should you consider when deciding to invest in property?

Pros

1. Property is a tangible asset.
2. The housing market is less volatile than some other opportunities to invest.
3. Some investment property costs are tax-deductible.
4. Negative gearing can be a reason for a tax deduction.
5. Long-term investment may mean high growth potential.
6. Rental income may cover the expenses, so the investment pays for itself.
7. Positive gearing can mean rental income leaves surplus cash after expenses.
8. Use the equity in the property to access cash.
9. Increase your investment through renovations and expansions.

Cons

1. Additional costs such as legal fees and stamp duty to pay.
2. Capital gains tax to pay if you decide to sell and have made a profit.
3. Problem tenants may stunt rental income.
4. Capital growth relies heavily on the local property market.
5. Ongoing costs such as maintenance and insurance.

Contact Lendstreet for investment property investing!

Lendstreet has a vast range of investor loans and equity release and refinancing loans ready to go! We will assess various products and lenders to discover your best match!

Contact Lendstreet today and begin your journey into property investment! Call 1300 317 042 to speak with a broker now! Alternatively, you can email support@lendstreet.com.au or complete the online form.

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FAQs

How easy is real estate investing?

Purchasing a rental property is relatively easy if you have a great credit history and a strong financial situation. The difficult aspects for many property investors begin when the maintenance costs involved begin to pile high!

Be aware of the ongoing costs of real estate investing so you know what to expect!

Secure personal financial advice from Lendstreet to assess possible loan options and mortgage payment affordability.

Is it worth employing a property manager?

An experienced property manager can help to reduce property expenses in the long term. They will ensure the tenant pays their rent on time and manage any issues which arise.

Property management fees do not need to be expensive and there are many property managers to choose from.

How can I make the most money from property investing?

Keeping your costs low and your rental income high is the main way to make money from real estate investing in a suburb with a suitable median house price. Take out an interest-only loan and purchase a property where there is a high demand for tenants and ideal house prices.

You should also maintain awareness of the housing market and forecast price increases and declines, knowing when to buy.

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