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How to buy an investment property?

Investing in property can be a powerful way to wealth creation and long-term financial security. However, purchasing your first investment property requires careful planning and understanding multiple, interacting financial aspects and market conditions. This guide will help you navigate the process and make informed decisions. 


IMPORTANT DISCLAIMER: This information is general and does not take into account your circumstances. Please get in touch with us to speak with a lending expert. Do not make any decisions before seeking professional advice

Our Lending Associate, Gloria Thompson, giving a settlement gift to our clients, Amy and Liz, celebrating their successful investment property purchase.

Our Lending Associate, Gloria Thompson, is giving a settlement gift to our clients, Amy and Liz.

Why buy an investment property? 

Before we jump into how to buy an investment property, it's important to talk about why. Until relatively recently, the traditional path to financial independence was fairly straightforward.  Save a deposit, buy a house, get your mortgage paid off, and then squirrel away savings to supplement the aged pension. 


Today, the aged pension barely provides a safety net and house prices are through the roof. The average house now costs eight times the average salary and more like 10 times in markets such as Sydney and Melbourne. To put that in context, until about the end of the 1980s, the average house price was still only three times the average salary.  


Furthermore, today's wages have not kept pace with inflation. When interest rates peaked at 17% in 1989-90, home loan repayments ate up 44% of household income. Today, with interest rates at 6.8%, the average household is spending a whopping 58% of their income on mortgage payments. And that's before we include essentials such as home insurance, utilities, and groceries. 

Housing costs as a proportion of gross income for lower-income households, by state and territory, 2019–20 

Table showing housing costs as a proportion of gross income for lower-income households by state and territory for 2019-20. Highlights the financial burden of housing across different regions

Chasing your tail 

What you can see is that saving your way to wealth is a nice idea, but it doesn't work as effectively as it used to. Whereas our grandparents could save their way to homeownership and then retirement by applying spare cash to their mortgage, the modern home loan borrower has very little spare cash left over.   


This is where having an investment property can break you out of the cycle of chasing your tail. A well-chosen property can offer capital growth potential with little cash outlay. This of course is dependent on the investment being structured properly to allow your investment costs to be offset by rental income and tax benefits.  


As with any investment, there are risks. One of the ways to manage risk is to formulate your strategy with the help of real estate and financial experts who specialise in property investing. When we help you develop an investment strategy, we look at your whole financial situation, as well as your investment goals, and formulate a strategy based on realistic investment performance and contingencies. 

Invitation to join an educational event to learn about paying off your mortgage sooner.

Who is buying investment properties? 

Property investing used to be the domain of the rich, but these days around 8.7% of Australian Households have at least one investment property. While older Australians still dominate investment property holdings, the trend has shifted towards a younger demographic. Working-age people now make up around 25% of property investors. 


My Finance Agent clients who invest in property are: 


People who want to pay off their home loan sooner 

We formulate customised strategies that use the capital growth of an investment property to pay off the balance of your primary residence and leave you debt-free. It is designed for people who have 15 to 20 years remaining on their mortgage. 


First-time property buyers 

Your first property does not have to be a home you live in. Many of our clients get a foot on the property rung with an investment property. A customised strategy can be developed that utilises an investment property to build up equity that can be used as a deposit on a subsequent property. 

Bar graph showing the percentage of recent home buyers by age of household reference person for 2019-20. Highlights age demographics of new property buyers.
Preparing for retirement 

A significant number of our clients have developed property portfolios that provide them with ongoing rental income, as well as the flexibility to sell the properties as time goes on during their retirement. We can design a customised strategy based on your retirement goals. 


Self-Managed Superannuation Funds (SMSF) 

Your SMSF may be eligible to borrow money to purchase a residential or commercial investment property. Returns, either through capital gains, rental payments, or both, are channeled back into the super fund for reinvestment or use during retirement.     


Understanding Investment Property Loans 

An investment property loan is specifically designed for purchasing a property that is intended to generate income. You may already be familiar with home loan borrowing because you have an owner-occupier mortgage. But for first-time property investors, it's important to know that investment property loans have some important differences, especially in terms of interest rates and borrowing criteria. Understanding these differences is crucial for selecting the right loan. 


Graph showing the increase in Sydney dwelling prices over time. Highlights property market trends and capital growth in Sydney's real estate sector.

Benefits of Property Investing 

As we have already discussed, investing in property may offer several benefits: 

  • Long-term growth potential: real estate typically appreciates (goes up in value) over time, providing significant potential returns. 

  • Income generation: rental income can provide a steady cash flow. 

  • Hedge against inflation: property values and rents usually increase with inflation.

  • Leverage and equity building: as you pay down the mortgage balance, you build up more equity. 

  • Tax benefits: there are numerous investment property tax deductions available for investment properties. 


Steps to Get Your First Investment Property Loan 

 When you work with My Finance Agent, we go through the following process as we design a customised investment strategy for you: 


  1. Determine your investment strategy: decide on your investment goals and the type of property you want. 

  2. Assess your financial position: evaluate your creditworthiness, equity or savings, and income to understand your borrowing capacity. 

  3. Create a budget and projections: use a borrowing power calculator and a budget planning calculator to estimate the costs involved and potential rental income to ensure the investment is viable. 

  4. Select a lender and loan product: research and compare different lenders and loan options. We work with 60+ lenders, including the mainstream banks and niche lenders. 

  5. Loan pre-approval process: learn about the benefits of getting pre-approval to know your borrowing limit and show sellers you are a serious buyer. 

  6. Finding the right property: look for properties that meet your investment criteria and budget, using Free Property Reports, and utilise our network of property investors who specialise in investment modeling.  

  7. Formal approval and settlement: once you find a property, go through the formal approval process and complete the purchase. 

  8. Follow-up and review: regularly review your investment to ensure it continues to meet your financial goals. 

Get your free property research report for detailed market updates. Stay informed on real estate trends, capital growth, and investment opportunities

Risks and Considerations 

Property investment comes with risks such as market fluctuations, vacancy periods, and liquidity issues. It's essential to conduct thorough research and seek professional advice to mitigate these risks. 


Working with a My Finance Agent Broker 

Using a professional broker can provide several advantages: 

  • Independent analysis: we offer objective advice based on your financial situation. 

  • Scenario planning: we can help you understand different investment scenarios and choose the best option. 

  • Best Interest Duty: unlike lenders, brokers are legally required to look after your best interests and provide you with options that suit your financial goals and needs. You can read more about Best interest Duty here.  


Purchasing your first investment property is a significant step towards building wealth. By understanding the process and working with specialist professionals, you can make informed decisions and achieve your investment goals. Start your journey with confidence, knowing that you have the right knowledge and support. For more detailed information, consult with a lending expert here.  




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