4 Common Property Investment Mistakes

Diving into the world of property investment can be both exhilarating and daunting. With the potential for considerable returns, it’s tempting to jump right in. However, it’s essential to be aware of common pitfalls and arm yourself with strategies to navigate them.

Here’s a guide to help you avoid four common mistakes when buying your first investment property.

1) Poor Cash Flow Management

Understand Initial Costs: Before even looking at properties, familiarise yourself with the initial costs associated with buying. This includes stamp duty, legal fees, and inspection costs.

Anticipate Ongoing Expenses: Owning a property isn’t just a one-time purchase. There are ongoing costs like council rates, water bills, insurance, and potential repair costs. Setting aside a contingency fund may save you from financial stress down the line.

Budgeting is Key: A detailed budget will be your roadmap. It helps you identify potential financial challenges and address them proactively. If budgeting isn’t your strong suit, consider seeking financial advice or using budgeting tools and apps.

2) Falling For Rental Guarantees

The Allure of Guarantees: On the surface, rental guarantees — where a vendor promises a specific rental income — seem attractive. But it’s crucial to dig deeper. Often, the cost of these guarantees is embedded in the property’s purchase price. This means you might be paying a premium without realising it.

Market Rate Comparison: Always compare the guaranteed rate to current market rates. If the guaranteed rate is significantly higher, be cautious. When the guarantee period ends, you might struggle to attract tenants at a similar rate.

3) Risky Off-the-Plan Purchases

Potential Savings vs. Risks: Buying off-the-plan may be more affordable than buying an existing property. However, it’s essential to be aware of the associated risks.

Delays in construction can affect your financial plans, especially if you’re paying rent or another mortgage while waiting. Another potential problem with buying off the plan is that you can run into issues with securing finance. Some lenders may offer conditional approval (finance in principle) for off-the-plan purchases before construction starts, but they won’t actually loan you the money until the property has been constructed and they have performed a valuation on the finished product.

Valuation Changes: The property market can be volatile. By the time your new property is ready, its valuation might differ from your purchase price, affecting your loan-to-value ratio and potentially increasing your loan costs.

4): Trying to Do It Alone

Understanding all the ins and outs of buying a property can be tricky. From finding the right property to suit your investment goals to securing a home loan that meets your specific needs, the process can be a bit of a minefield.

That’s where we can help. As a mortgage broker, we can do the hard yards for you, from explaining your borrowing capacity and creating a purchasing budget, to providing professional advice about the right loan product and structure for your specific financial situation and goals.

As a full service advisory business, we can assist you with your property strategy, buying the right property and the lending  – check out services

Ready to start?

If you’re keen to start your property investment journey with confidence, reach out to us. We’re here to guide and support you every step of the way.

Home loan application process explained

Are you planning to purchase your first home or investment property?

It’s an exciting time and nothing compares to the feeling of holding the keys to your very own property in your hand.

If you’re new to buying property, here’s how the home loan application process works.

Understand your borrowing power

When it comes to buying a home or investment property, the first step is to get a clear picture of your borrowing power and budget.

How much can you afford to spend on the property? What repayments can you reasonably cover?

Having a budget in mind will help you narrow down your property search and avoid overspending. Touch base with us for some preliminary insight into your borrowing capacity.

Choose a lender

Next, it’s time to see what loans are available and get a feel for the different lenders. The easiest way to do this is to have us compare the market for you.

We’ll get to know your financial situation and goals before recommending a suitable home loan.

Get pre-approved

Once you’ve decided on a lender, we’ll get the ball rolling with pre-approval on your finance.

This is when a lender agrees, in principle, to lend you a certain amount of money. It’s also referred to as ‘approval in principle’ or ‘conditional approval’.

You’ll still need full approval down the track, but getting pre-approved allows you to bid or make an offer on a property with confidence.

Gather the necessary documentation

You’ll need to supply a range of documentation to support your pre-approval application.

Requirements can differ from lender to lender, but generally speaking, they’ll typically want to check your:

  • Proof of identity
  • Proof of income and employment
  • Credit score
  • Deposit and savings history
  • Expenses
  • Assets and liabilities.

We can walk you through the paperwork and ensure nothing is missed.

Review the pre-approval offer

If the lender decides you’re a suitable candidate for a loan, they will issue you with a pre-approval letter.

Remember that pre-approvals are not a definite guarantee that you’ll get a home loan. You’ll still need to meet the conditions stipulated by the lender.

Pre-approval shouldn’t cost anything. There’s also no obligation to take out a full home loan with that lender.

Typically, pre-approvals are valid for three months.

Find a property and make an offer

After pre-approval comes the fun part – house hunting. Once the right property comes along, it’s time to make an offer.

You’ll need to decide at this point whether to stick with the lender that gave you pre-approval or shop around for another home loan.

Complete a full mortgage application

The final step is to complete the full home loan application for unconditional approval.

If you decide to go through the same lender that gave you pre-approval, most of the documentation will probably have already been completed. We’ll walk you through any other requirements needed.

As part of your application, your lender will likely get an independent valuation of the property. This helps them determine the risk involved in lending you the money.

If all goes well and your mortgage application is approved, the lender will send you an unconditional loan approval letter. It’s a good idea to have your solicitor or conveyancer review everything to make sure it’s in order before you sign the loan documents.

Settlement

Finally, it’s time for settlement. At this point, the lender will certify that your documents are in order and advance the home loan.

Your legal and financial representatives will meet with the seller’s representatives to swap documents and lodge the transfer of title. Stamp duty is usually paid at the same time as settlement.

Then the property is all yours!

Ready to buy?

As a first-time buyer, getting your head around the home loan application process can be daunting. That’s where we come in.

Mortgage brokers may take the stress out of applying for a home loan. We have access to a wide range of lenders and understand which home loans might work for your specific financial circumstances and goals.

Let’s chat about your property purchasing plans. Get in touch today.

When are interest rates expected to drop?

From May 2022, the Reserve Bank of Australia (RBA) began one of the most aggressive monetary tightening periods in Australian history as it tried to curb soaring inflation.

But with several months of cash rate pauses by the RBA, many believe the tide may have turned.

So, now the question on everyone’s lips is: when will interest rates come down in Australia?

While there’s no crystal ball to predict exactly what the RBA will do next year, there is growing speculation that interest rates will come down in 2024. Let’s see what the experts are predicting.

What the Big Four banks are saying

  • Commonwealth Bank expects there to be four cash rate reductions, kicking off from March 2024 and finishing with a cash rate of 3.10% by the end of next year.
  • Westpac is banking on a more gradual decline, starting with a cash rate drop in September 2024 and another one in December to 3.60%.
  • NAB is anticipating a cash rate cut in August 2024. It anticipates the cash rate will return to around 3% by early 2025.
  • ANZ foresees the RBA pausing the cash rate for an extended period, before easing it towards the end of 2024.

It’s important to remember that the predictions above are not a guarantee. Unforeseen events like changes in global economic conditions or domestic policies can impact cash rate decisions.

What about inflation?

The RBA has been trying to get inflation back within the target range of 2-3%. In recent months, we’ve seen inflation coming down, so it appears things are on track.

According to the RBA, headline inflation is expected to decline to 4.5% by the end of 2023 and to reach 3% by mid-2025.

What you can do as a borrower

Stay informed

Make sure you keep across the news so that you are up to date with the RBA’s cash rate decisions.

Next year the RBA is changing things up, following recommendations from the review of the central bank. There will be eight cash rate decisions instead of 11. Four of the meetings will be on the first Tuesday of February, May, August and November. The other four meetings will be held midway between these meetings (dates to be confirmed).

Regularly review your home loan

With interest rates potentially on the move, it’s important to review your home loan. It’s especially true if you haven’t had it checked in the last two years.

Ask us for a home loan health check and we’ll explain how your current loan measures up in today’s mortgage environment, along with if refinancing could be right for you.

Like to talk through your options?

Maybe you’re thinking about buying a property once interest rates come down. Talk to us about how a drop in interest rates could affect your borrowing capacity and what you can do now to prepare for a property purchase in the near future.