Finding out how much you need for an investment property is one of the most important steps a first time investor will make. Saving for a deposit and working out finances can seem like a daunting task, however with a bit of careful planning and some assistance you’ll find it’s easy than you thought!
Thinking about how much you should save, property experts will tell you to consider the following:
- Ongoing mortgage costs and fees
- Strata costs if relevant
- Contingency fund for maintenance and emergency repairs
All banks and lenders have rules about lending money for mortgages, and generally they will want to see evidence of savings as well as an amount set aside for a deposit (normally at least 5% of the purchase price of the property). The number one rule for investing in property is to be prepared, and this applies to when you’re thinking about how much you’ll need to save.
Many property professionals will say save as much as you can before you even consider getting into the market. However, with options such as off the plan properties, it is surprisingly easy to put a deposit down – generally 10% of the total purchase price – and then have a few years to be able to get your finances in order before you have to pay the full amount. Obviously the amount you’re going to need on an ongoing basis if you’re investing in property will depend of the purchase price and any other costs associated with your loan. Sitting down with your accountant, financial planner or bank will help to give you an indication of how much you could afford and how much you may be able to borrow.
As someone investing in property, you will also want to look at the generous tax incentives for investors. The Australian Tax Office allows investors to claim expenses from your rental property on an annual basis (although only for the period it was rented out). These can include property management fees, advertising for tenants, council rates, maintenance costs and any travel expenses accrued while going to inspect the property. The ATO website has a full list of all expenses you can claim, and your accountant or financial planner will also be able to help you work out what you might be able to claim each year.
The important thing to remember when you’re wondering about how much to save is that investment property is affordable for almost everyone, as long as you are organised from the beginning and have a long term plan for your investment. Creating and following a 10 to 15 year plan can help you spread out your goals into a manageable form, and keep you on track over the long term. Ironfish are one of Australia’s leading property investment and management companies, and can assist you with all aspects of investing in property, from creating a sustainable plan to sourcing exceptional property opportunities.