October 23, 2024 by Duane Mengel
When diving into the thrilling world of property investment, it’s crucial to grasp the essentials that will set you up for success! Understanding your borrowing capacity, rental income needs, and ongoing costs is key to thriving as a landlord. 📊💰
Why Invest in Property? 🤔🏘️
Investing in real estate is one of Australia’s hottest wealth-building strategies! With around 2.2 million Australians—about 20% of the tax-paying population—owning at least one investment property, it’s clear that this path is both popular and potentially lucrative. 💸📈
Planning for Success 📅🎯
If you’re eager to join the ranks of successful investors, effective planning is your best friend. Without a solid game plan, you might end up with an investment that feels more like a financial sinkhole than a golden opportunity. ⚠️
Before you leap onto the property investment ladder, ensure you have a crystal-clear picture of your budget and what it will cost to manage your rental property. Remember, while the initial and ongoing costs can be hefty, with the right strategy, you can turn your investment into a cash flow powerhouse over time! 💡💪
Your Borrowing Capacity 💵🤝
Your Mortgage Choice Coffs Harbour broker (Duane Mengel) can help you determine your borrowing capacity, so you understand your budget when it’s time to start looking for a property. 🏠🔍
The discussion with your mortgage broker will include:
•whether you will need a cash deposit or if you can use equity from an existing property 💰🏦
•your ability to meet your loan repayments and expenses, including in tough times 🏛️💸 – e.g., if the property isn’t tenanted for weeks or months 🗓️
•how much you can afford to spend on property upgrades such as renovations, repairs and landscaping 🛠️🌳
•how much you will need for upfront costs and ongoing maintenance expenses 💼💡
•what type of loan (e.g., fixed-rate loan, interest-only line of credit) is right for you 🔄💳
Once your broker has a solid understanding of your financial situation and investment goals, they can give you an indication of your borrowing capacity and help you apply for pre-approval for an investment loan. ✅📄 Lenders will assess your borrowing capacity in the same way they do for an owner-occupied loan; however, they’ll also take the potential rent into account as an additional source of income for you. 🏘️💵
Budgeting for Ongoing Costs 💸📅
As a landlord, you will incur a variety of expenses associated with owning and tenanting your investment property. This includes rates and body corporate fees, as well as insurances to protect your asset. 🏘️🛡️
You may be able to claim most of your rental property expenses on your tax return, which makes the bills more manageable (always check with your accountant). These expenses may include:
•advertising for tenants 📢
•accountant’s fees 💼
•interest on your investment loan 💳🏦
•council rates, body corporate fees, land tax, and strata fees 🏛️
•repairs, maintenance, pest control, cleaning, and gardening 🔧🧼🌿
•insurance on your rental property 🏠🛡️
•depreciation on the building and some fixtures and fittings 🛋️🏠
While the ongoing costs can be substantial, they’re essential for protecting your investment and keeping the property in good condition. This ensures that the property is appealing for renters and also to a potential buyer when you’re ready to sell. 🏡✨ It’s better to overestimate how much you may need for these costs, so you’re not caught short. 📊
Your Mortgage Choice Coffs Harbour broker (Duane Mengel) can help you with this. 🤝💬
What is Negative Gearing? 🤔📉
Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year. This creates a taxable loss, which can normally be offset against other income, including your wage or salary, to provide tax savings. 📉💰
It is advisable to speak to your tax advisor or accountant for practical advice. 📞💼
Get in Touch 📞💬
Even if you’re brand new to property investing, there are many resources available to equip you with the knowledge and confidence to take that first step on the property investment ladder. And you don’t have to do it alone. 👥📚
If you’re keen to buy an investment property, get in touch with Mortgage Choice Coffs Harbour – Duane Mengel on 02 5642 4994 or duane.mengel@mortgagechoice.com.au. We’d love to help you get started! 🚀💼
[1] ATO, Taxation Statistics 2020-21, published 8 June 2023