How much should I invest in property

Property investment is a relatively safe and accessible means for wealth creation within Australia. If you’re looking to start or add to your property portfolio in 2017 it’s necessary to first ask yourself just how much should I invest? Of course there are many factors to consider, however the amount will most likely be determined by where you’re thinking of buying and how much you may need to spend renovating or updating the property. While there is no real magic number, we’ve compiled a property investment checklist to help you make an informed decision.

Our Property Investment Checklist

Property is unlike other investments such as shares in the sense that it requires you outlay a significant amount of money for a deposit in order to get started. This doesn’t include any additional charges such as pest and building inspection costs, solicitors fees, finance for renovations and so on. How much you’re willing to spend can also depend on whether you buy in a “blue chip” suburb, that is, a suburb within the CBD that can be negatively geared to offset short-term losses, or, if you purchase a low cost property with a high rental yield. Ultimately though the answer to “how much should I invest in property?” hinges on where you’re looking to purchase and the following 4 questions.

1. Can I Afford To Purchase An Investment Property?

Before approaching a bank for pre-approval or starting to save for the deposit, it’s perhaps best that you take a closer look at your own finances to glean whether you’re financially secure enough to pay off an investment property. The pressure to produce monthly mortgage payments will be alleviated if you are able to secure tenants quickly, but for most first time investors, this is an integral step towards fulfilling your property investment dreams. Consider these questions:

  • Do I save more than I spend?
  • Have I budgeted to account for all ongoing property costs?
  • Do I have a grasp on the diverse costs involved in owning property and when I’m expected to pay them?
  • Do I have any debt?

2. What Am I Looking To Get Out Of The Investment?

Do you want to increase your portfolio or purchase your very first investment property? Maybe you’re looking for a great value for money home that you can negatively gear then flip for a profit? Or perhaps it’s a low cost, high yield investment that can be leased. Whatever your motivation it’s important to ask yourself what you’re looking to get out of the investment in order to find the ideal location and set about saving for a deposit.

3. Do I Have Enough For A Deposit?

Deposits are counted as a percentage of the purchase price and can be negotiated depending on what the contract for sale stipulates. This question is a pretty easy one to answer; if you have the funds for a deposit you can purchase, if not, keep on feeding the piggy bank. If you do have the necessary amount for a deposit then you also need to take into account stamp duty, building and pest inspections, solicitor’s fees, and so on. Once you feel you’ve saved up enough to purchase an investment property, it’s on to the next question.

4. Do I Understand The Risks Involved?

Understanding any dangers involved when investing in property and surmising just how much risk you can tolerate without taking a step backwards can help you create a strategy that mitigates all potential pitfalls. Nobody likes budgeting, but if you’re going to manage risk cogently then you better get used to it.

Our advice is to always keep your eye on the market and consult with real estate agents or financial planning professionals in the area to better gauge how much you should be spending. By doing this and utilising our checklist you’ll be able to go forth and start ticking of potential investment properties in your suburb of choice. Happy buying!


Resources:

  1. Commonwealth Bank of Australia, 6th September 2016, “How Much Do You Need To Start Investing”, (https://www.commbank.com.au/guidance/investing/how-much-do-you-need-to-start-investing–201607.html)
  2. Nila Sweeney, 21st April 2016, “8 Steps to Getting Started in Property Investment”, (http://www.realestate.com.au/advice/8-steps-to-getting-started-in-property-investment/)
  3. Jack Needham, 15th December 2015, “How much money do I need to invest in property”, (http://www.smartpropertyinvestment.com.au/markets-a-research/14963-how-much-money-do-i-need-to-invest-in-property)

 

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