A significant portion of the population are now buying more than one investment property and the recent property boom in Melbourne has also been driven by property investors. A question mortgage broker What If We Finance answers often is what should I avoid when buying an investment property. This article explains some of the important factors that banks look for when assessing an investment property.
Banks have a list of properties they prefer not to lend to and more often that not this includes student accommodation, defence housing, small apartments, commercial properties and properties in a business or mixed zoning or in country or outer coastal areas.
In such circumstances banks restrict the percentage they will lend against the property and this needs to be a factor if you are financing the purchase of an investment property.
Banks like to avoid properties with rental guarantees and certain inner city post codes and surrounding areas may have lending restrictions.
“Off the Plan”
Be cautious when evaluation Off the Plan properties especially when the offer includes rental guarantees, free holidays and other inducements. Also while you may be saving stamp duty developers often pay 10% GST and this may be factored in to your property price.
Also with a significant rise in new apartments hitting the market you need to ensure you pick an area with good capital appreciation prospects.
Analyse and Plan
As a property investor you need to research rental returns, property values and property conditions. Do not just rely on real estate agent appraisals. Also you need to have funds set aside to cover unforeseen expenses and potential interest rate rises.
Chasing negative gearing and not capital growth
While the tax benefits associated with owning an investment property are attractive you are ultimately buying the property to create wealth. Do not be seduced by high rental yields. In the current market if the property looks too good to be true be wary.
Also avoid properties in towns with 1 industry such as mining towns. While in boom times property prices may grow, experience shows that property prices can fall hard during the lean times.
What If We Finance can help you by providing property reports and market intelligence so contact us today. As always please consult with your financial advisor before engaging in the purchase of an investment property.