Are you ready to become a landlord? - Alpha 1 Financial Solutions

Are you ready to become a landlord?

Are you ready to become a landlord?

Whether this is your first property purchase or adding to your property portfolio, it pays to ask yourself the following questions to decide if you (and your partner) are prepared to jump on the investment property ladder.

1. Do your numbers stack up?
Having a detailed analysis of your financial situation and the type of property you wish to buy are vital first steps to a successful investment. Factors a lender will consider are:

  • Your current credit score
  • Your employment history and stability
  • Other loans or bad debt that may impact your application
  • Whether you can you afford to contribute to the additional costs of the property (aside from the rental income)
    Remember holding costs of the property such as ongoing maintenance, repairs, rates and insurances are included in your serviceability calculations.
  • Prices of comparable sales in the area
  • Projected rental return on your investment
  • Your affordability should your investment property be vacant for periods of time

2. Are you in for the long term?

Property investing is generally a long-term strategy. Depending on the property and many other variables, it is possible the longer you can hold a property, the better chance you have to build some equity. Making a profit on a property in the short term may be tricky considering the high costs of buying, selling and managing market conditions.

3. Do you have sufficient equity or deposit?

If you don’t have sufficient savings to contribute to the deposit and acquisition costs, you may need to consider if you have enough equity in your existing home/other property. Utilising equity to buy an investment property is a popular way for many investors as it does not require a lump sum cash outlay for the deposit.

If using equity, your existing home will be used as security for the new investment loan so you will need at least enough equity that would cover a typical deposit (can be up to 20%) and purchasing costs. It may be possible to purchase with less than 20% deposit, however lenders’ mortgage insurance (LMI) may apply as an additional cost.

4. Do you have trusted experts on your side?

Find specialists who can help you make the right property investment decision. This could be your:

  • accountant
  • solicitor
  • finance specialist, or
  • your favourite real estate agent/buyers’ advocate.

5. Will you manage if things change?

Questions you need to ask yourself are:

  • Do you have a ‘buffer’ in case your circumstances or interest rate change?
  • What happens if you or your partner temporarily lose your income or if your salary doesn’t meet the ongoing financial demands of a property?
  • Are you typically emotionally strong enough during times of difficulty?
  • Have you other skills or assets that can increase your income or cashflow if your financial circumstances change?

6. Do you know/understand the loan types and structures to be an investor?

As an investor, you will be evaluated by lenders on both your existing income sources and the potential rental income from the property. It is important for us to help you find a lender that can match your investment goals.

We want to find a lender that will have the right loan and features to suit your current and future circumstances. Some considerations we will discuss with you to help decide will include:

  • Interest only or principal and interest repayments
  • Fixed or variable interest rate, or split between both
  • Offset account
  • Additional repayments/redraw facility
  • Line of credit
  • Repayment frequency

7. Is the property a good investment?

Some of the most important factors that influence a tenant’s decision include:

  • Suburb or area of the property
  • Number of bedrooms
  • Proximity to schools, shops, cafes, parks etc
  • Convenience to public transport and infrastructure
  • Off-street parking, carport or garage
  • Ample storage
  • Internal laundry
  • Outdoor space such as yard, courtyard or balcony

8. Is the property appealing to renters?

You have better chances of attracting good and longer-term tenants if you have a well maintained and presented property with key features (above), attractive decor and well-functioning quality fittings and fixtures.

If you are comfortable with the above questions, then perhaps it is a good time to start the conversation.

Let’s catch up for a chat soon.


Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. ©2023
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