Practical tips for buying your first property
Buying your first investment property (or any property for that matter) can be daunting.
Here's a few practical and useful tips to consider:
- PREPARE PREPARE PREPARE
- CHECK YOUR CREDIT REPORT
- AFFORDABILITY ASSESSMENT
Preparation is the key to success, so they say. This should not be a spur of the moment decision. Take your time, at least 6 months to prepare! You want this to be as predictable as possible. You can never be 'over prepared'.
2. CREDIT REPORT
Check your credit report, make sure the score is high and the report is clear (no adverse findings or late payments). Banks will certainly check this to form a view on your historical relationship with credit. A good place to start
3. AFFORDABILITY ASSESSMENT
As a rule of thumb, banks will fund repayments not exceeding 30% of your gross monthly income for a primary residence. Depending on your income, you want to be at 20% or less. Not only is this more affordable, it will allow you to build 'equity' in the property quicker. Also spending to your max affordability on an investment is generally not a good idea.
The best thing you can do, is to be honest with yourself and not be overly optimistic. Create a income and expense spread sheet detailing all your income and expenses. Including a simulation of the rent to be received. Keep in mind this rent will discounted by up to 30%. This doesn't mean you must overstate the rent to counter the discount
An income and expenses spreadsheet will help you understand your finances better. See where you can cut out 'unnecessary' expenditure. Make sure sure you cater for additional costs such as levies, rates and taxes etc in your income and expenses simulator.
Note: Banks like predictability - KEEP your spending consistent. No erratic clubbing nights with the mates (well at least of your main account)
There is no magic or secret to this, investing in property is capital intensive. Save for the deposit, Bond registration costs, renovations etc.
Note: Speak to your bank/banker and get them on board as you go along. Nothing should come as a surprise when you make an offer.