How To Get Started In Property Investment

With its low vacancy rates, rising rents, excellent rental yields and relatively affordable housing, the Perth property market is primed for investors right now.

Right now it’s attracting local, interstate and even overseas expat property investors.

If you want to join them and get into property investment in Perth, where do you begin? We take a look at how to get a start in property investment.

Why invest in property in Perth?

The Perth property market is a perfect storm of excellent rental yields, rising rents, low vacancy rates and comparatively affordable housing at the moment, making it a great place to invest in property.

The city is currently experiencing exceptionally low vacancy rates, with the April 2021 figure sitting at a tight 0.9 per cent. Rental yields, meanwhile, are strong, with houses returning 4 per cent gross rental yield in May 2021, and units 5.3 per cent. And rents are on the rise – house rents have shot up 15 per cent in the last twelve months, with units close behind with a jump of 14.4 per cent. Add to this Perth’s median dwelling value of $521,688, putting it among the nation’s most affordable capital cities, and you’ve got a property market primed for investors.

Here are four ways to get started:

Saving for an investment property

Typically, you’ll need a 20 per cent deposit to buy an investment property. There are loan options that don’t require the full 20 per cent, such as taking out lenders mortgage insurance, but they come with additional costs.

Saving a 20 per cent deposit is no easy feat. Make sure your savings are in the highest-earning savings account you can find and cut back on costs wherever you can. Simple things like bringing your lunch to work, cutting back on takeaway coffees, buying second hand – they all add up.

If you don’t have a 20 per cent deposit, you could investigate a guarantor loan, where someone else (usually a family member) who owns their own property guarantees your deposit. If you own your own home, you can also use equity to form your deposit – more on that later.

Rentvesting to buy an investment property

Rentvesting, where you buy an investment property while you rent the home you live in, is gaining in popularity as more people find themselves priced out of the property market in the areas in which they’d like to live. Rentvesting allows you to live in the area you’d like to, while still getting a foot onto the property ladder by purchasing an investment property in an area where you can afford to buy.

If you’re thinking about rentvesting and are open to the idea of living in your investment property for at least six months, consider whether the WA Government’s First Home Owners Grant could help you. The grant is a one-off payment of $10,000 designed to help first home buyers buy or build a new home to live in. To qualify, you must move into the home within 12 months of settlement (if buying a new home) or completion (if building a new home), and once moved in you must live in the home as your principal place of residence for a continuous period of at least six months.

Buying an investment property through a self-managed super fund (SMSF)

Did you know it may be possible to purchase an investment property through a self-managed super fund (SMSF)? Whether you’re already a member of an SMSF, or you want to set up an SMSF to facilitate the purchase of an investment property, SMSFs are allowed to borrow money to fund a direct property purchase.

Purchasing an investment property through an SMSF is complex, with plenty of rules around what you can and can’t do. For example, a residential property bought through your SMSF cannot be lived in by you, any other members of the fund, or anyone related to fund members, nor can it be acquired from any fund members or their relatives. One of the advantages of buying an investment property through an SMSF is potentially paying less capital gains tax (CGT), as CGT is generally capped at 10% within an SMSF.

You’ll want to seek professional advice from an independent financial adviser with an Australian financial services (AFS) licence before you proceed.

Leveraging equity to buy an investment property

If you own your own home, you may be able to purchase an investment property by leveraging the equity you’ve built up in your home.

Equity is the value of your home, minus any money you still owe on it. Banks and lenders lend against useable equity, which, if your home is worth $450,000 and you owe $200,000 on it, is calculated like this:

  • Home value $450,000
  • 80% of home’s value $360,000
  • Minus the $200,000 mortgage = $160,000 useable equity

Multiply your usable equity by four to get a rough idea of how much you may be able to spend. In this example, $640,000 would be the maximum you could pay for an investment property.

However, even if you have plenty of usable equity, it’s not a guarantee that the bank will lend you money against it. The lender will take into account other factors such as your income, any other debts you have, your age and your dependents before deciding whether and how much to lend to you.

Always seek advice from a trusted professional, such as an accountant or an independent financial adviser, before embarking on any new investment.

To find out more about getting started in property investment in Perth, contact our property management team today.

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