Buying Your Investment Property: Step by Step Guide
Step 1: Have your mortgage loan pre-approval in place
Having your Investment loan already arranged and knowing how much you have to spend gives you the confidence to make a calculated offer on your property of choice. Ensure you have asked your lender or mortgage broker to detail all the loan features, benefits and costs associated with your investment loan.
Step 2: Choose the right property in the right location
Research your chosen suburb by checking all advertised listings in newspapers, the internet and real estate agents. Make sure that you know the price of recently sold comparable properties. It is important to choose an investment property with your head, not with your heart. Remember, you won’t be living there so try to pick a property with features that appeal to the rental market, ie close to public transport, schools etc.
Sometimes investing in property in another state is a better financial option. Keep informed by reading reports on national property updates and best performing suburbs. Usually capital cities outperform regional areas, however some coastal options have also seen very good growth.
Step 3: Make an offer
For properties sold by private treaty you will need to make an offer to the real estate agent listing the property. Obtain a copy of the contract for sale and organise for your conveyancer/ legal representative to check it.
Properties being auctioned may be open to offers prior to the auction date. If you buy at auction you will usually be required to pay a deposit of 10% on auction day. The contract for an auctioned property is unconditional and no cooling off period applies. If bidding at an auction, make sure that your conveyancer/ legal representative has checked the contract and organised pest and building inspections before you bid
Step 4: Conveyancer/ legal representative
The contract for sale should be given to your conveyancer for advice and checking. The conveyancer will advise you of your cooling off rights (varies from state to state). Once the contract has been signed by both parties and exchanged, the contracts are legally binding. The contract will indicate when the deposit will have to be paid. If no pest and building inspections have been carried out, it is advisable that they are ordered by the conveyancer.
Step 5: Final loan approval
We will organise loan documents for the balance of the purchase price to be prepared and signed by you.
Step 6: Insurance
Your lender will require you to organise building insurance (except in the case of strata title properties). Most investors also invest in landlord insurance.
Step 7: Final inspection
Arrange for a final inspection of the property with the real estate agent. Check all inclusions in the contract for sale and that they are in working order. Check light switches, power points, air conditioners, exhaust fans, hot water, swimming pool equipment and security system and request copies of all manuals for stove, dishwasher and other relevant inclusions. If your property is interstate perhaps have a friend inspect it for you or jump on a cheap flight and do it yourself. Costs associated may be claimed with your tax return.
Step 8: Settlement
Your conveyancer/legal representative will attend to settlement. This is the day on which the balance of the purchase price is paid to the vendor. Stamp duty and lender’s mortgage insurance will also have to be paid. You can collect the keys from the real estate agent once settlement has been advised.
Step 9: Appoint a property manager
A good property manager will source and retain quality tenants, collect rent, conduct inspections and organise repairs and maintenance on your property. They will provide you with a schedule at the end of the financial year showing rental income, repairs and maintenance and property management fees for taxation purposes.
If something goes wrong
If you have signed a contract to buy a property it may be a costly exercise to withdraw even if you have not reached settlement. If the cooling off period has passed, the contract is binding. If you wish to get out of the contract you may be liable to pay compensation to the vendor. The amount will depend on the loss suffered by the vendor and is usually based on the amount it would take to re-sell the house including any loss on the subsequent sale. Read your contract carefully to be aware of the consequences of defaulting on the contract. If you do not wish to proceed with a contract, seek independent legal advice as soon as possible.