Investing in property, such as residential real estate, is likely to be a lengthy process and one that usually involves a long-term plan. To ensure you have considered what is required before making the big purchase, we’ve outlined steps you need to take in that process.

• Do the numbers

A property investment must be a long-term commitment in order for it to be worthwhile, so the very first step is to ‘do the numbers’ to evaluate your budget, potential constraints and future financial and personal obligations, including the potential impact on family members.

Consider your future as far ahead as you can – remember that you should be expecting to hold the property for a minimum of five to ten years. You need to assess your ability to maintain, or increase, personal income, as well as your commitment and ongoing financial capability to continue to service the investment which will incur other costs in addition to loan repayments.

• Obtain professional advice 

Once you’ve run the number, you’ll need to obtain professional advice. An investment in real estate is likely to be significant in relation to your current financial position. 

Discuss the investment with a licensed financial planner or investment adviser to check if residential real estate is appropriate in your current circumstances. Consider aspects including rental return, maximum capital growth and/or tax effectiveness. 

Following that, unless you have cash or other investments that can be converted to cash to make your property investment, the next step is to contact a mortgage broker to help you to secure finance to enable the purchase. 

This will give you the opportunity to ask the broker as many questions as needed to alleviate any uncertainty you may have about securing that finance. 

Brokers who assist consumers to secure finance for residential property are heavily regulated and must be licensed. They must also hold membership of the external dispute resolution scheme and hold appropriate qualifications, including maintaining continuing professional development. The broker should also hold membership of an industry body, like the MFAA, which triggers a requirement of an additional layer of obligations through compliance with its code of practice. 

Next, you need to locate a suitable property. You may want to consider using a buyer’s agent who can assist you in this process – potentially saving you money by disregarding inappropriate properties and concentrating on those that are more likely to deliver the highest return and capital increase to you over time.

• Talk to relatives and friends 

Talking to friends, family and acquaintances who have already made such an investment, or are currently considering one, can help your awareness of stumbling blocks and potential issues that you might otherwise miss. While any issues you face may seem new, it can help to bounce these off a trusted friend or relative who has been there before.

• Collate your information and seek pre-approval

To apply for finance, you will need proof of your current income, employment, and your assets; as well as all liabilities, including debts, loans, rental payment, outstanding credit card obligations and any other payments including buy now pay later commitments. 

Collate these and any paperwork that helps support your personal position. For example, if you have been a long-term tenant, get a 12-month tenancy statement that proves your capacity to make regular repayments. 

Before applying for a loan, minimise your current debt load, and if possible, reduce the limit on, or cancel, any credit cards you have, as this is perceived by lenders as potential for debt.

It is strongly recommended that you have a fully assessed pre-approval before you start your search. This will allow you to know what your financial limits are so that you can make an offer when you’ve found a property you like.

• Treat the purchase as a business decision and commit

While an investment property purchase should be a business decision, not an emotional decision, it is wise to consider choosing a property based on whether you feel like you could live in it. 

Also consider what type of properties appeal to the people living in the area – your tenants (or perhaps an owner/occupier you might sell to down the track) are making an emotional decision when they decide where to live. 

You also need to make the commitment to ‘manage’ the investment – even if you outsource the day-to-day tasks involved, including locating suitable tenants, collecting rents, paying relevant costs in rates and taxes, and ensuring that the property’s repairs and maintenance are kept up to date.