You’ve established an emergency fund, your family’s future is secure, you have enough savings and you feel the next step is investing your hard-earned money to truly enjoy financial freedom. You can choose many investment options, each with its returns and benefits. 

One of the best investment options nowadays is property investing in Australia or real estate that will net you high returns with minimal to medium risks. 

There are many reasons and motivations to try out property investing. When the market is volatile, you can use property investment as a buffer for financial loss. Besides this, you can enjoy the perks of real estate investment. 

Whatever your reasons for getting into the foray of property investment, may it be buying or holding land, property flipping, increasing property value or creating a passive income stream through rental property, this is a great way to diversify and improve your financial portfolio. However, if you’re new to all this and don’t have the slightest idea where to start or have questions in your head, such as ‘Is it better to buy an investment property with cash or mortgage?’, we have you covered! Here’s a blog to help you understand what is an investment property and how you can start your investment property journey.

What Is Investment Property?

To learn the ins and outs of property investing, we must first define investment property and how it is a relevant source of passive income. Investment properties are real estate properties purchased to obtain a return on investment by reselling the property or putting it up for rent or lease. A single investor, pair or corporation can own this kind of property. 

Investors can pursue investment properties for the long-term or short-term, depending on their preference or financial circumstance. These assets are rarely used as primary residences by property owners but instead undergo a market study called the highest and best use of land to determine the highest possible return rate. 

Investment property pertains not only to land, building or house properties used for income generation but also art, shares and other collectibles that may appreciate over time.

Types of Investment Properties

Different investment properties are depending on how the property owner decides to use and maximise the assets. The income generated also varies depending on the type.

Let’s look at the different kinds in more detail:

Residential Real Estate —Whilst not necessarily used as a primary residence by the property owner, these residential properties are leased or rented out to tenants. These include single-family homes, condominiums, townhouses, apartments and other residential structures.  

Commercial Real Estate —Investors can buy structures for industrial or commercial purposes and are usually rented out to corporations or companies for use in their respective businesses. These real estate properties include hotels, offices, warehouses and retail companies. Like residential real estate, cash flow is generated by monthly rentals or selling the property when its value rises. 

Real Estate Investment Trusts (REITs) —These companies act as trusts and manage a portfolio of real estate investments wherein investors can buy shares. Whilst you don’t necessarily own the assets, you earn passive income from the properties the trust manages. Examples of properties where a REIT invests are malls, offices and hospitals. This may sound similar to commercial investment properties, but they don’t come with the risks of owning real estate directly. 

Mixed-use Real Estate —These properties simultaneously serve as residential and commercial real estate. Similarly, cash flow is also generated through monthly rentals.

What Are the Signs You’re Ready to Buy an Investment Property?

The buying process for an investment property is essentially different when comparing it to buying a primary residence. Although some aspects are similar, such as the use of a home loan for financing, there are other factors to consider when purchasing an investment property.

Here are the important qualifications for you to assess your readiness to buy an investment property:

• Financial Stability —Investment properties require higher financial stability when buying than primary residences. Financial firms or mortgage lenders will require you to pay a downpayment. This downpayment adds to the increase in costs, not including the repairs and maintenance when having tenants for your investment property. A portion of the additional expenses also goes to advertising your investment property to attract the right tenants.
• Recognising Return on Investments (ROI) —Before purchasing an investment property, you must know how to calculate your approximate ROI. If you see value in renting out your investment property to the right tenants with a positive cash flow, then purchasing that real estate is well worth the money. 
• You’re Hands-on and Have Time to Manage —Managing your investment property is not an easy task and requires you to be hands-on and have the time to manage it. This work means putting up advertisements, interviewing tenants, conducting background checks, collecting their rents on time, doing maintenance and more. 

If you have all these qualifications and you think you’re up for it, you are now ready to purchase an investment property and enjoy your passive income. 

Other Things to Consider Before an Investment Property

Whilst your willingness and financial status are good indicators of your readiness to invest, a few considerations will help you assess if the time or conditions are right for purchasing and making your investment. 

• Consider Housing Market Trends —To determine which areas or locations are ripe for investing and will grant you an increase in value over time, you must do market research first to achieve your financial goals. Analyse market trends before applying for a loan. 
• Consider If You Need a Business Partner —Buying a property with a business partner may seem like a great idea as you can pool your money, which means less cost when buying a property. However,  this also means you split the profits and share legal liability with another person. This can be an added risk for your investment property if your partner isn’t trustworthy or reliable. 
• Property Taxes —Knowing your property tax rate is essential because the more valuable the home is, the higher your property tax rate will be. This can help you make an informed decision when you’re choosing an investment property to buy.  
• Consider If You Need a Property Management Company —This removes the stress and hassle involved when managing your investment property, such as maintenance and tenant management. However, it’s best to note that a percentage of your monthly rental will go to the company, including other fees. 

How to Apply for Investment Home Loans

The next crucial step when purchasing your investment property is applying for investment home loans. Home loans are financing granted by mortgage lenders to provide the capital you need to start buying your investment property. Before lending you money, mortgage lenders will need to check your credit score. 

A credit score is used by financing firms or mortgage lenders to check if you can pay for the downpayment and monthly amortisation on time. The lenders will need proof of your income, assets and liabilities to provide you with flexible solutions for your needs. Investment property home loan rates also depend on your credit score standing. 

Consider these factors when applying for a home loan:

• Downpayment
• Loan amortisation
• Loan term
• Interest rate

Now that you have the right home loan, you can start enjoying your passive income and build your investments to reach financial freedom. 

Start Your Property Investment Journey with Investorfi

Did this article provide the proper guidelines when purchasing your first investment property? If you have further questions on anything involving property investing in Australia or mortgage concerns, don’t hesitate to reach out to us at Investorfi for your needs. We have property investment experts who can help assess your situation and amplify your wealth.