News

March 7, 2023

Preparing Your Finances to Buy an Investment Property

The home-buying process, whether it be your first home or an investment property, is an exciting time; yet one that requires sufficient planning and preparation. For socially focused property investors looking to make a positive impact on their community, they may be gearing up to purchase an NDIS investment property.

Finding an ethical, bricks-and-mortar investment needs adequate financial preparation, which is why we’ve prepared this brief guide on what you need to do when preparing your finances for property investment.

How to prepare finances to buy a house

Chances are that buying a house for yourself or as an investment is going to be through borrowed funds — so preparing your finances is vital in order to obtain the funding required to make the purchase a reality.

Income verification

Perhaps unsurprisingly, lenders will want to look at your income to ensure that your income can support an investment mortgage. Naturally, the rental income from your proposed investment property will be considered in the serviceability of your loan, however, gathering at least three recent payslips, and your last ATO income tax return documents will put you in good stead to having the base information ready for your lender.

Top Tip: stability is crucial for lenders and often increases your borrowing power as it makes you a lower-risk borrower. For this reason, it’s a good idea to stabilise your employment prior to applying for a property mortgage, to give yourself the best chance of getting approved.

Consider how you’ll make your deposit

Look at your financial situation to determine how you’ll cover your deposit. Making a down payment towards your property purchase doesn’t just make good financial sense, but down payments (known as deposits) are required by mortgage lenders.

If you’ve been able to save money towards your investment, you could ensure that these funds are readily available for if you happen to find the right property sooner than expected. Some savings accounts (such as term deposits) may restrict access to your savings.

For other investors, it might make more financial sense to use their existing home to purchase an investment property. Many lenders offer the ability to utilise the equity in an existing property to put a down payment towards another property. Eligible borrowers should ensure that they understand the pros and cons of doing so.

costs of investment property

Know the costs involved & ongoing expenses of your investment property

On the standard residential property market, it’s easy to gauge the ongoing costs with an investment property by looking at similar properties and talking to a real estate agent — however, with NDIS investment properties, things are a little different.

Lending on the purchase price

Depending on the mortgage company you go through, you might have a different Loan-to-Value (LVR) ratio, meaning that you might be restricted on what percentage of the purchase price you can borrow.

Stamp Duty

Don’t forget that land tax and stamp duty are required to be paid on top of your deposit, and will vary between states and territories.

Legal fees

Depending on how you choose to purchase your investment property, there may be legal fees or other expenses (such as any professional fees for obtaining property investment advice or pest inspections).

Ongoing expenses

There will generally always be council and water rates payable every year, as well as other costs such as maintenance and property management fees.

Good to know: If you choose to invest in an SDA property, you’re required to use specialist property managers. SDA funding helps to cover the building and maintenance costs of owning an SDA dwelling.

mortgage repayments

Similar to your home loan repayments, it’s a good idea to calculate your possible investment mortgage repayments to know their impact on your budget and cash flow. Many property investors use the rent payments to contribute to the loan repayments of their investment property.

The final interest rate you pay on your investment loan generally won’t be known until your application is finalised. With interest rates rising rapidly at the moment, it naturally leads to higher repayments, so it makes it even more important to run the numbers before buying into the housing market. Some investment properties can be put on interest-only mortgage payments, however, this depends on the lender.

The benefits of holding SDA as investment properties

There are many benefits to investing in an SDA property:

  • Generate income with a strong yearly yield between 10-15% pa.
  • SDA houses have excellent capital growth potential.
  • You can access a GST-Free investment.
  • Take the strain off nursing homes, group homes and families by providing specialist accommodation to support those living with extreme functional impairment or significant disability.

Financially ready to make a difference to the lives of Australians with disability? Contact Apollo Investment for a tailored finance solution by a panel of professionals who are experienced in NDIS property investment.

Get in touch with our team for more information now.

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