Investing in property can be one of the most effective ways to grow your wealth over time. It allows you to put your money to work and potentially earn significant returns that can surpass traditional investment methods. 

Let’s explore how to start investing in property, covering everything from understanding the basics to financing your investments.

Understanding the Basics of Property Investment

What Is Property Investment?

Property investment involves purchasing real estate to generate future financial returns. This can be through earning rental income, benefiting from capital growth when the property’s value increases over time, or both. 

Typically, investors buy property that they do not plan on occupying as their primary residence. Instead, these properties are used to generate rental revenue or held as a long-term investment to be sold at a profit in the future.

Any type of property can be an investment property, but here are the main types of investment properties:

Let’s look at a few pros and cons of each. 

Pros and Cons of Each Property Type

Residential Properties

Pros:

  • Potential for steady rental income
  • Lower capital requirements compared to commercial properties
  • Potential for long-term capital appreciation
  • Diversification of investment portfolio

Cons:

  • Higher maintenance and repair costs for landlords
  • Potential for vacancies and tenant turnover
  • Less favourable lease terms compared to commercial properties
  • Limited upside potential for cash flow and appreciation

Commercial Properties

Pros:

  • Potential for higher rental income and returns
  • Longer lease terms and rent escalations to account for inflation
  • Lower vacancy risk compared to residential
  • Potential for higher capital appreciation

Cons:

  • Higher initial investment and down payment requirements
  • More complex management and leasing process
  • Exposure to economic cycles and changes in commercial demand
  • Potentially higher operating expenses passed on to the landlord

Industrial Properties

Pros:

  • Stable and predictable rental income
  • Lower maintenance costs compared to other property types
  • Potential for long-term leases with rent escalations
  • Increasing demand due to growth in e-commerce and logistics

Cons:

  • Potential for lower capital appreciation compared to other sectors
  • Exposure to changes in manufacturing and supply chain trends
  • Competition from newer, more modern industrial facilities
  • Limited pool of potential tenants in some markets

Mixed-Use Properties

Pros:

  • Diversified income streams from residential and commercial tenants
  • Potential for higher overall returns compared to single-use properties
  • Increased foot traffic and visibility for commercial tenants
  • Ability to cater to changing consumer preferences and market trends

Cons:

  • More complex management and leasing requirements
  • Potential conflicts between residential and commercial tenants
  • Higher initial investment and development costs
  • Exposure to both residential and commercial market conditions

Benefits of Investing in Property

Investing in property comes with a host of financial advantages that make it an attractive option for many investors:

Capital Growth

Over time, property values have historically appreciated, providing owners with substantial returns upon selling their properties at a higher market value than their purchase price.

Rental Income

Properties can generate ongoing income from tenants. This rental yield can cover mortgage payments and property maintenance, with the potential to profit directly from excess rent.

Tax Benefits

Property investors can often claim tax deductions for various expenses associated with owning and managing investment properties, including interest on loans, property management fees, repairs, and depreciation.

Stability

Unlike stocks and other financial markets, the property market tends to exhibit less volatility, making it a safer investment option for many people. The tangible nature of real estate also adds a layer of security that other types of investments do not provide.

Passive Income

For many, the ultimate benefit of property investment is the potential to earn passive income. This can provide financial freedom and an improved lifestyle without the need for active daily involvement once the property is managed properly.

These foundational elements make property investment a compelling choice for those looking to build wealth over the long term. With a clear understanding of what property investment entails and the benefits it offers, investors are better prepared to make informed decisions about entering the market.

Preparing to Invest in Property

Assess Your Financial Health

Before diving into property investment, you need to assess your financial health to ensure you are in a position to invest effectively. This should include:

  • Check your credit score. A higher credit score can help you obtain better mortgage rates, potentially saving you thousands over the life of a loan.
  • Lower your existing debt, not only to improve your credit score but also to increase the amount you can potentially borrow. 
  • Assess your financial readiness including ensuring you have enough savings for a down payment and additional funds to cover closing costs and any immediate property maintenance issues. 

Set Your Investment Goals

If your financial health is in a position to invest, the next step is to set out clear investment goals. 

Ask yourself the following questions:

Are you investing goals short-term or long-term?

Decide whether you are seeking quick returns through property flipping or long-term wealth accumulation through rental income and property value appreciation. Your strategy will influence the type of properties you consider and the financing methods you employ.

What is your risk tolerance? 

Property investment can vary greatly in risk. For example, investing in established areas with steady rental demand offers lower risk compared to investing in up-and-coming neighbourhoods. Understand your comfort level with risk, as this will guide your investment decisions.

How long do you plan on investing? (This is your investment horizon) 

Consider how long you plan to hold onto your investment property. A longer investment horizon typically allows more time for your property to appreciate in value and can provide more flexibility when choosing the optimal time to sell.

Setting clear, realistic goals based on your financial situation, risk tolerance, and investment horizon will help in developing your approach to property investment.

The First Steps

Now that you have a good understanding of your financial health and you have set out your investing goals, the next step is to figure out what type of property you want to invest in.

Research the Market

Effective market research is foundational to making informed property investment decisions. Gain a good understanding of overall real estate market trends, such as changes in interest rates, housing supply and demand, and economic factors that influence property prices and rental markets.

Thorough market research helps you identify not only where the market currently stands but also where it is headed, enabling you to anticipate and capitalise on potential investment opportunities.

Find the Right Location

Choosing the right location can significantly influence both capital growth and rental yields. 

When choosing the location you want to invest in, consider these factors:

  • Growth Potential: Look for areas with signs of economic growth, such as new infrastructure projects, employment opportunities, and increasing population trends, which can lead to higher property demand.
  • Rental Yield: Areas with high rental demand relative to supply typically offer stronger rental yields. Research historical and current rental prices to gauge potential income.
  • Amenities: Proximity to amenities such as schools, public transport, shops, and healthcare facilities can attract a larger pool of tenants.
  • Safety and Lifestyle: Locations with low crime rates and a high quality of life are more desirable to both renters and buyers.
  • Future Developments: Be aware of any planned developments in the area that might affect property values, positively or negatively.

Choose the Right Property Type

Choose the appropriate type of property that aligns with both the chosen location and your overall investment strategy:

  • Houses vs. Apartments: Houses often offer the benefit of land ownership and potential for significant capital growth. They generally attract families looking for stability and long-term tenancy. Apartments, on the other hand, might not appreciate as quickly but can offer higher rental yields, especially in high-demand urban areas.
  • New vs. Older Properties: New properties typically attract higher rents and require less maintenance, potentially offering greater depreciation benefits. Older properties might cost less initially and provide opportunities for value-adding through renovations.
  • Match to Strategy: Ensure the property type matches your investment strategy. For instance, if your goal is to generate passive income, a property with high rental yield and low maintenance, like a new apartment in a bustling area, might be ideal.
  • Commercial vs. Residential: As outlined above, investing in commercial properties such as office spaces, retail locations, or warehouses can offer longer lease terms and potentially higher income stability compared to residential properties. However, they may require a larger initial investment and can be more sensitive to economic conditions. Residential properties, while typically involving shorter lease terms, can offer more consistent demand and easier entry into the property market.

Vacation Rentals vs. Long-Term Rentals: Properties in popular vacation destinations can be rented out as short-term vacation rentals to capitalise on tourism-driven demand, often yielding higher rental rates per day compared to long-term rentals. However, this comes with greater seasonal fluctuation and potentially higher management overhead. Long-term rentals may provide less income per month but offer more consistent revenue and fewer operational hassles.

Financing Your Property Investment

Understanding Property Financing Options

Choosing how to finance your property investment is as important as selecting the right property. There are various mortgage options available to investors:

  • Investor Mortgages: These are specifically designed for properties that will not be the primary residence of the owner. Typically, interest rates may be slightly higher than residential mortgages due to the perceived higher risk.
  • Interest Rates and Terms: Mortgages come with different interest rate options such as fixed, variable, or a combination. Fixed rates provide certainty over repayments, while variable rates may offer lower initial rates.
  • Loan-to-Value Ratio (LVR): This is the percentage of the property’s value that you can borrow. Investors might need to provide a larger deposit to secure a lower LVR, which can influence the interest rates and lending terms offered.
  • Loan Features: Features like offset accounts, redraw facilities, and the ability to make extra repayments can be important depending on your investment strategy.

To choose the best financing method for you, compare these options and consider how they align with your financial goals and investment strategy. Calculate the potential returns on investment considering different financing scenarios to ensure the sustainability of your property investment.

The Role of a Mortgage Broker in Property Investment

Using a mortgage broker for property investing isn’t strictly necessary, but it can be highly beneficial, especially for those new to the property market or those looking to optimise their financing options. Mortgage brokers simplify the property investment process by being the link between the investor and securing their investment property loan.

Are You Ready To Invest In Property?

Investing in property is an exciting avenue that can lead to significant financial benefits if approached with diligence and strategic planning. Throughout this guide, we’ve covered the essential steps on how to start investing in property—from understanding the fundamentals and preparing financially, to choosing the right property and financing your investment property. 

Property investing requires careful preparation and a clear understanding of the market dynamics. With the right approach, you can maximise your returns, generate steady rental income, and achieve long-term capital growth. However, your investment journey doesn’t have to be taken alone.

At Atelier Wealth, we are dedicated to helping our clients succeed in their property investment ventures. Our team of experienced mortgage brokers and property investment advisors are here to provide you with guidance, from selecting the right property to securing the best financing options. Whether you are making your first investment or looking to expand your portfolio, we are here to support you every step of the way. Reach out to us now to schedule a consultation and take the first step towards becoming a successful property investor.