Can you afford an Investment Property?


We have often heard of a friend (or a friend of a friend) who is making a killing with investment properties and wonder why I cannot do the same? With the housing market on the rebound, home values are rising across the nation and it could be a great time to invest in some properties. Should we?

Before you shell out the big bucks in the hopes of a stable financial future, it’s important that you understand what makes a good investment and focus on obtaining your returns. Here are some questions to ask yourself if you think maybe your next home purchase should be an investment property. If you think you’re ready, first check with your bank on how much you can borrow from them so you can work out how much house you can afford.

Are You Ready to Invest?

Owning an investment property is not for everyone. It’s a good idea to get a strong grasp on your personal finances and life plan before you decide to add real estate to your portfolio. You may want to read the ATO tax rules on property, buy a few books and turn to short courses to see how real estate investing works.

What Kind of Property Should You Start With?

There are plenty of strategies you can use to customize your plan to fit your personality and abilities but generally units and apartments do not drain your cash flow that much compared with houses. You might rent a home and buy a place to rent out, becoming a landlord. If you are good at construction or have a lot of connections in the industry, you may be looking at a renovation opportunity. It’s always a good idea to get familiar with vacancy rates and rents in the area before you determine if it makes sense.

Can You Afford It?

Can you afford a property is really about if you can afford the ongoing expenses. Financing the property itself through a cash payment or down payment and mortgage is up to you — just be sure you have a real understanding of how this affects your finances before you begin. From there, you must estimate how much an investment property will cost you. There are, of course, repairs from time to time but there are also water, rates, utilities, land tax, strata fees etc. On top of that you will have to pay legal and accounting fees and must be prepared to cover the cost of the home entirely in the case of evictions or vacancies. Don’t forget the property engagement fee if you want a property agent to look after the property for you – this will cost you 5.5% to 13% of your rental income.

Start Your Research Now

If you think you are ready, I strong recommend you to use the free Investment Property Calculator on my website to see how much you need to pay out-of-pocket each year in order to control (I prefer the word control as you con’t own it until you pay off the mortgage) your investment property.

There are some other tools that you can use as well such as Home Rent or Buy Analysis Calculator which allows you to see compare rent or buy a property, How Much Can I Borrow Calculator which gives you a good idea on if you can borrow enough money to buy the investment property you have identified.

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