top of page
  • Writer's pictureMichael Smith

A Beginner’s Guide to Investing in Real Estate

Over the long-term, real estate has been one of the best-performing asset classes, so it is no wonder Australians have a love affair with brick and mortar investments. Of course, it’s easier if you’ve done it all before, but what if it is your first time? Where do you begin?

If you’re looking for practical assistance on where to start when it comes to investing in real estate, the Growthfront team is available to help you navigate what may be an exciting yet daunting period. Here’s what you should know to get you started on the right track.

1. Planning is Everything

For a realistic entry into the property market, you really want to plan everything. As they say, if you fail to plan, you are planning to fail. Improve the likelihood you end up with an investment property that does well for you by setting out a plan with all your goals and objectives.

You should remember that a property investment is a considerable responsibility and obligation, so you don’t want to approach this lightly. That’s why every bit of planning you do early on will help you in the grand scheme of things.

If you’ve never prepared a plan for an investment property before, you can ask a Growthfront mortgage broker to guide you through this exercise. The team can offer their input and advice, while also helping you complete any due diligence, research, plus reviewing your finance and options.

Nonetheless, there are a few key aspects you may want to consider by yourself before meeting with a member of the Growthfront team.

Investment Horizon

First things first, you should give some thought as to how long you plan to own the investment property. Without considering if the property will be a long-term investment, or a stepping stone you use to ‘trade up’, you won’t be able to set clear objectives for what you want out of this investment.

Assess your Finances

The next thing you want to do is weigh up your financial position. There is no point looking at a long list of properties in an area that aren’t accessible to you because you either can’t receive a loan, or can’t service said loan.

Speak to your Growthfront mortgage broker and we’ll help you work out your borrowing power and loan serviceability, so you know what’s realistic, and what’s not.

Research Suburbs and Trends

If you already know which suburb or region you’d like to invest in, great! If not, it’s best to start with a shortlist of potential options, and then go from there.

In either case, what you really want to do is ensure you have good insights on the trends unfolding within the suburb(s) on your radar, as well as the state of the rental market in that area. Naturally, this means understanding the property types and features that tenants typically place a high value on in your chosen suburb(s), and looking at the going rent in these locations.

The Growthfront team can put you in touch with the necessary real estate professionals if you want to have a detailed chat about the demographics and trends unfolding in a suburb you might be interested in.

Why is this so important? If you don’t have an understanding of the area you are investing in, you can’t prepare the base case for what you expect to return from your investment.

Establish Your Potential Return on Investment

Once you have an idea of the property you are looking at, or properties for that matter, and you also know what sort of rent might be typical in the relevant location(s), it’s time to start turning your attention towards potential returns.

One of the key aspects you will want to consider here is the rental yield of the investment property. Don’t forget, for a more realistic insight, you should be more concerned with net rental yield, which takes into account your expenses.

Aside from that, take a look at the long-term property value trends in the area(s) where you are looking. While past performance is no indicator of future performance, the data should serve as a guide of sorts to help you form an opinion regarding the demand for property in that location.

2. Putting Together a Deposit

With your plan now in place, you have the framework for what sort of property you might want to invest in. You might be thinking about a loan already, but before that, it’s time to put together a deposit.

Nowadays, you can invest with a deposit that is worth as little as 5% of the value of the property. In this case, you will generally need to pay lenders mortgage insurance (LMI), although there are some exceptions. Outside of these generous provisions, you generally need to put together a 20% deposit to invest in real estate.

We all know it is difficult to accumulate cash savings in this environment, but fortunately, you don’t necessarily require cash for the purposes of a deposit for an investment property. Instead, if you have built up enough equity in a home you already own, you can use the equity as a deposit for your investment property.

Of course, not everyone owns their own home, which may rule out this option for some. If this sounds like you, look into a guarantor loan, which effectively allows a guarantor to put forward the equity in their home as a deposit for your investment property. However, always think about the legal and personal consequences at hand, especially if the guarantor is a relative, as relations could turn sour if things don’t work out.

The amount of your deposit will ultimately help you decide on the type of investment loan (e.g. variable rate or fixed rate), and the terms that you might be willing to accept. Investment loans typically come with a higher interest rate due to greater risks, but the Growthfront team is available to explain all the ins and outs of different investment loans.

3. Establishing Costs

Even if you don’t put forward a cash deposit, you shouldn’t look past the fact that you will need to meet a number of expenses as an investment property owner.

The easiest way to break these down and establish your overall costs is by grouping said expenses into one-off costs, and ongoing costs.

In terms of one-off costs, these are expenses that you need to pay up-front when you purchase the investment property. These are either taxes, legal requirements, or costs that relate to the condition and status of the property. More specifically, these might include:

  • Stamp duty

  • Legal and/or conveyancing fees

  • Loan application fees

  • Pest and building inspections

  • Strata searches (for apartments and townhouses)

On the other hand, ongoing expenses relate to managing the investment property. On the plus side, a number of these costs are tax-deductible, which means you may be eligible for a tax break. We can help you identify some of the common benefits available, but you may also wish to speak to your accountant. Examples of ongoing expenses might include:

  • Loan interest expenses

  • Council and utility rates

  • Maintenance and repairs

  • Body corporate fees

  • Real estate management fees (i.e. letting and advertising)

  • Landlord insurance

  • Land tax

4. Apply for an Investment Property Loan

With all your planning and budgeting now complete, it’s time to tackle what is arguably the biggest hurdle many property investors face. That is, applying for an investment property loan.

This is also perhaps the most daunting step, because one little error here could result in a big setback, or even missing out on an investment property altogether.

Given the importance of this step, we always recommend engaging a professional for assistance, and that’s what we are here for. We’ll help assess all the different investment loan options so you can set yourself up for the best chance of success.


bottom of page