Common Mistakes When Selecting Investment Properties

Understanding Investment Property Selection

When you're ready to invest in real estate, selecting the right property becomes crucial for your long-term success. The property you choose will directly impact your rental yield, capital growth potential, and overall investment property portfolio performance.

Buying an investment property involves more than just finding an available property within your loan amount. You need to research property markets thoroughly, understand different property types, and consider how each option aligns with your property investment strategy.

Key Property Types for Investment Consideration

Stand Alone Dwellings
Stand alone dwellings often appeal to families and typically command higher rental yields in certain markets. These properties usually offer more land value appreciation potential but may require higher loan amounts and stamp duty costs.

Town Houses
Town house investments can provide a balance between land and building value. They often attract stable tenants and may offer moderate maintenance requirements compared to larger properties.

Apartments
Apartment investments typically require lower entry costs and can generate steady rental income in high-demand areas. However, you'll need to consider body corporate fees and potential oversupply issues in some markets.

Financial Considerations for Investment Property Selection

Understanding Loan to Value Ratio (LVR)
Your LVR determines how much you can borrow and whether you'll need to pay lenders mortgage insurance (LMI). Most lenders require a maximum 80% LVR for investment loans to avoid LMI, though some offer higher LVR options.

Interest Rate Options
Investment loans typically carry slightly higher interest rates than owner-occupier loans. You can choose between:

• Variable interest rate for potential rate decreases and flexibility
• Fixed interest rate for predictable repayments and budgeting certainty

Calculating Investment Property Returns

Rental Yield Analysis
Calculate both gross and net rental yield to understand your property's income potential. Consider vacancy periods, property management fees, maintenance costs, and other expenses when determining net yield.

Negative Gearing Considerations
Negative gearing occurs when your rental income is less than your property expenses, including loan repayments. While this creates tax benefits, ensure you can sustain the ongoing costs and understand the long-term implications.

Investment Loan Application Process

When applying for an investment loan, lenders will assess your borrowing capacity differently than for owner-occupier loans. They typically:

• Use only 70-80% of projected rental income in serviceability calculations
• Require comprehensive banks statements and financial documentation
• Assess your existing debt-to-income ratios more strictly

To access investment loan options from banks and lenders across Australia, you'll need to provide detailed property research, demonstrate your investment strategy, and show capacity to service the loan even during vacancy periods.

Property Research and Due Diligence

Market Analysis
Research property markets thoroughly, considering:

• Population growth and employment opportunities
• Infrastructure development and transport links
• Rental demand and vacancy rates
• Historical capital growth trends

Property-Specific Factors
Examine individual properties for:

• Building and pest inspection results
• Council zoning and development plans
• Rental potential and tenant appeal
• Maintenance requirements and ongoing costs

Streamlined Application Process Tips

To ensure a streamlined application process:

1. Prepare all required documentation before applying
2. Understand different investment loan interest rate options
3. Consider various investment loan options and features
4. Work with professionals who understand investment lending
5. Plan for additional costs like stamp duty and legal fees

Building Your Investment Property Portfolio

Once you've secured your first investment property, consider how it fits into your broader investment property portfolio strategy. Each property should complement your overall goals and risk tolerance.

Remember that calculating investment loan repayments involves more than just principal and interest. Factor in property management, insurance, rates, and maintenance costs to understand your true cash flow position.

Successful property investors often start with one well-researched property before expanding their portfolio. Take time to understand how investment loan refinancing might help you access equity for future purchases as your portfolio grows.

For comprehensive guidance on investment loans and accessing the right lending options for your property investment strategy, professional advice can help you avoid common pitfalls and maximise your investment potential.

Call one of our team or book an appointment at a time that works for you to discuss your investment property goals and explore suitable loan options.