If you are buying your own residential property:

Financial issues:

Can you afford it?

• You need to understand your limit. It’s easy to be caught in the moment, especially with auctions. Make a budget and stick to it.
• To make a good budget, make sure you are not using the current interest rate as a bench mark, but the possible higher rate based on the last few years.
• Include in your budget all property related expenses such as council fees, land taxes, etc.
• As much as possible, consider all the major events or life plans for the following few years. Such as buying a car, having a baby, overseas travel, etc. Forecast for the worst case scenario, so that you can plan for the best.
• Use the mortgage calculator on our website to help you. You only need to type in 3 figures and you will have a good understanding of how much principle and interest you are paying for each period during whole term of the mortgage.
• Still unsure? Talk to an Accountant or Financial Planner to have the best understanding.

Find the right bank for your loan

• Do your research on the loan products on the market
• When you compare them, make sure you include their admin fees as well as a part of the cost. Some products offer very low interest rates, but once you factor in the annual admin fees, the rate is much higher.
• Try to use a product that can offer an offset account. At any moment you deposit money to this account it will start saving interest for you, and it will keep saving for you for any period of time it stays there!
• If you are not certain, be sure to talk to an Accountant or a Financial Planner.

Other factors:

• To make sure that the price is right, invest the time to visit as many home openings as possible and find out how much properties were sold for at the end. Check the history of sales during the past couple of months for similar properties around the same suburb.
• If price of your dream home is much higher than average, try to bargain down the price. Don’t get too emotional and pay more than what you should. Be reasonable with your offer and remain cool headed.
• Consider the potential for future capital gain. Even if you are buying the property for yourself to live in, future capital gain should be a part of the consideration too. It means you can earn money by simply living in it. And it is tax free!!
• Make sure you obtain a professional Engineering and Pest Inspection report before becoming committed to the purchase.

If you are buying an investment property, most the above would apply to you as well but you also want to consider the following issues:

Consider the net impact of cash flow to you.

• Before purchasing, you need to understand your financial goals. Are you looking at good rental income to have positive cash flow right now? Or good capital gain in the future?
• To calculate the impact of cash flow, use estimated rental income minus all the expenses. These include interest payments, all expenses to be paid to a rental agent, insurance, council rates, strata, land tax, water, repair & maintenance, and such like. If it is negative, you need to make sure whether your current budget gives you enough space for the outgoings.

You can include your end of year tax return as a part of the cash receipts. Remember that you can apply with ATO to reduce the tax deductions from your employer so that you can even out your cash flow over the year instead of receiving the return at the end of the year.

Deciding what properties to buy:

• House or Apartment: A house with land could mean better future capital gain, however there will be more cash outgoings since they are more expensive. Apartments are cheaper to buy. Therefore provide a better cash flow. However, it may not give you such a big capital return in the future.
• Location: properties in different locations and cities have different price increase rates or offer different rental incomes. If your main goal in purchasing an investment property is to gain future capital gain. Then focus on the areas that have shown a good performance in price increases. If your main purpose is to generate cash flow, then focus on the areas that will give you better return on rental income. Research into different areas, to see whether there is potential for a better capital gain. Or whether it will give you a good rental return.
• Environment: Does high or low population density affect prospective tenants?
• New or Second Hand: New properties are more expensive but are more attractive to tenants, therefore fetch better rents. However there could be hidden problems that can only be revealed once the buildings are a couple of years old.