Make a list of all your assets and liabilities and your income and expenditure. The net result should show a monthly surplus income and at least up to 15 per cent in savings or equity representing a possible deposit and purchasing costs.
Below are 4 main steps that set the criteria to help you find a suitable investment property:
- How Much Can I borrow?
Based on your current income, your other financial commitments and your level of savings will determine your borrowing capacity see How much can I borrow calculator for an estimate and also see How much can I borrow based on my deposit. Once you establish the parameters of your borrowing power you will need to also establish the costs involved for a particular property within the price range see Borrowing costs calculator.
Now that you have a general idea on what you can afford it is time to start looking for finance pre-approval.
- Your Consumer Credit Report
Before approaching any bank make sure that you obtain a copy of your Credit Report. You have access to your free report by contacting Baycorp Advantage. This is a very important initiative that you can take. The report contains all your credit history for the past five years including any finance enquiries you made or perhaps any defaults that you might not be aware of. Remember that once you apply for finance a bank will also request a copy of your credit report.
Your credit report is fundamental to a bank’s decision making process so it is important for you to familiarise yourself with all the information contained in your report and correct any details that are incomplete or not up-to-date. These days there is a high incidence of identity fraud so you need to be cautious whenever you use or apply for credit (your credit report could show listings that might be of complete surprise to you and if so, you could have fallen victim to a scam).
Clarifying any potential issue with your current creditors should also be resolved prior to approaching any bank will no doubt save you time and money.
Once you are satisfied that all is in order you may then proceed with talking to various banks and learn about the Loan Interview and Application Assessment process.
- Do Your Research
When buying a property it is important to gather all the market “intelligence” available to devise your purchasing strategy. If you are a novice at buying a property, where do you start? These days reading newspapers and magazines cannot be entirely trusted as many of the stories are sponsored or provided by real estate agents or property developers. You should refer to property sales reports which should form the basis of your market research. A trusted source for property reports is the “Home Price Guide property reports”. They are the leading source of reports for property prices and auction results in Australia. Please refer to why buy property sales reports?
The more information you have about the property market the less risk you will take and the higher the chances of your investment will make you money.
- How efficient is my new property?
Buying a property should not be left to luck. A researched approach should always prevail. No emotive irrational decisions should be adopted. The property should meet the criteria outlined in property growth location. A property is efficient when it maximises your tax benefits and generates optimum rental income and minimising your own personal cash flow contribution. Put simply into context; your monthly portion of the loan repayment should not exceed 15 percent and the remaining 85 percent should be apportioned between the tax office (in terms of tax benefits) and the tenant (paying rent) please refer to our Negative Gearing Tax calculator. This calculator will help you assess and measure the tax and cash flow efficiencies of a particular property.