Top mistakes property investors make

Top mistakes property investors make

Low interest rates and strong rental yields have provided the impetus for many Australians to try their hand at property investing.

While anyone can become a property investor, not everyone can be successful. If you have dreams of getting rich quick, you might consider rethinking your approach – experts say becoming successful in property investment takes time, research and a willingness to act.

So before you apply for your first mortgage as a property investor, take the time to consider the five mistakes property investors make.

Not doing your research

Buying an investment property requires a lot of research and many would-be investors attempt to bypass this crucial step in the process, often choosing to buy in an area they would like to live in or allowing themselves to become emotionally involved in the process.

A successful property investor will research and compare sale and rental prices in a number of suburbs, rental vacancies, capital growth trends in those areas, as well as compare home loans.

Waiting for the best time

“Everyone’s trying to wait for the best time to buy a property investment – with the highest capital growth, lowest interest rates, cheapest properties, stability in the market,” said Chris Gray, investment property expert and author of The Effortless Empire.

While you wait for the various factors to align – and they never will – the market will leave you behind, prices may go up and you would have sacrificed time on the market, he says.

“You’re never going to pick the peaks and troughs of the market,” he said. “As an investor, I buy when I have the money to buy.”

Trying to identify a hot spot

Rather than trying to find the next “hot” suburb, stick to areas that have proven their staying power time and time again. Up-coming suburbs may fail to achieve the returns you need for a successful property portfolio and could end up losing money.

“Where there’s high return, there’s high risk,” Gray said. “As a long-term investor, I buy in inner city areas around Sydney, Melbourne, Brisbane and Perth. I might not double my money buy I will get 10 percent return every year guaranteed.”

Concentrating on saving money

As the saying goes, you have to spend money to make money. Whether that’s on an investment course to provide you with the know-how for a smooth transition into property investment, or valuation and building reports to ensure the property you buy won’t cost you money due to a leaky roof or rising damp, don’t be reticent when it comes to initial outlays.

Not having enough cash reserves

Before you take a step onto the property investment ladder, you must ensure you have a pool of cash you can draw on to cover costs such as council rates, insurance and other fees if you find yourself without tenants.

Better yet, follow the experts’ advice and calculate all likely costs before you buy and factor in a 10 percent margin for unexpected expenses. Your property investment career will come to a quick end if you run into financial troubles and are forced to sell.

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Learn more about home loans

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

What is a draw down?

The transfer of money from a lending institution to a borrower. In a typical home loan, the funds are drawn down all at once in order to buy the property. In a construction loan, the money is drawn down in several stages to pay the builders as they progress through each phase of the project. In a line of credit loan, you can draw down money up to a limit based on your loan’s available equity.

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.