Property investment remains a popular topic across Western Australia.
Some people research investment property to understand the lending process, ownership costs, rental considerations and risks involved. Others may be preparing to discuss an investment-property loan with a mortgage broker, lender or appropriately licensed adviser.
Purchasing an investment property may involve lending requirements, upfront and ongoing costs, property research, legal obligations and investment risks.
Market conditions, lending requirements, ownership costs, property information and cash-flow assumptions may all be relevant.
For those considering property investing in WA, understanding common lending, cash-flow and ownership considerations may provide useful background before seeking appropriate professional advice or making a purchase decision.
Common Reasons People Research Property Investment
Property has long been part of Australia’s investment landscape.
Unlike some investments that can experience significant daily price movements, residential property is often viewed as a longer-term asset.
Many investors are attracted to potential benefits such as:
- potential rental income
- the possibility that property values may rise or fall
- ownership of a long-term physical asset
- the possibility of holding property for an extended period
Property investment involves risk. Property values and rental income may rise or fall, properties may remain vacant, and investors remain responsible for loan repayments and ownership costs even when rental income is reduced or unavailable.
Understanding both opportunities and risks is an important part of the investment process.
Questions to Consider Before Seeking Investment or Credit Advice
Before researching suburbs or speaking with lenders, many investors first consider their objectives.
Questions about investment suitability, risk tolerance, portfolio construction or whether property fits a broader financial plan should be discussed with an appropriately licensed financial adviser.
Questions often include:
- Am I seeking rental income?
- Am I focused on long-term growth?
- How long do I plan to hold the property?
- What level of risk am I comfortable with?
- How does property fit into my broader financial plans?
The answers may help a person identify matters to discuss separately with an appropriately licensed financial adviser, property professional, accountant and mortgage broker.
Different investors may have different objectives, circumstances and risk tolerances. These matters should be discussed with appropriately qualified professionals.
Understanding Property Investing in WA
Western Australia has its own market characteristics.
While national trends can influence property markets, local factors often play a significant role.
These may include:
- Population growth
- Employment conditions
- Housing supply
- Infrastructure projects
- Rental demand
FinanceCorp does not provide property selection, suburb selection or investment performance recommendations. Independent property and investment research should be obtained where required.
Perth and regional WA markets can also behave differently.
A suburb experiencing strong demand may perform differently from another area within the same city.
For this reason, investors may choose to obtain independent information about local market conditions.
Building a Deposit
Deposit requirements are one consideration when preparing for an investment-property lending enquiry.
The amount required will vary depending on:
- Property value
- Loan type
- Lender requirements
- Loan-to-value ratio (LVR)
In addition to the deposit, investors may need to budget for costs such as:
- Transfer duty
- Conveyancing or settlement costs
- Loan application, valuation or establishment fees
- Building and pest inspections
- Land title registration costs
- Initial insurance costs
- Ongoing property ownership expenses
Recording these potential expenses may help investors prepare a more complete estimate of upfront and ongoing ownership costs. Actual costs will depend on the property, transaction and individual circumstances.
How Investment Property Loans Work
Investment-property loans may have different interest rates, lender policies, deposit requirements and assessment criteria from owner-occupied home loans.
Lenders may assess investment applications differently because the property is intended to generate rental income rather than serve as a principal place of residence.
Depending on the lender and application, assessment factors may include:
- Personal income
- Existing liabilities
- Living expenses
- Rental income estimates
- Credit history
- Deposit size
Lending policies vary between lenders.
Indicative borrowing capacity, lender requirements and available loan options may differ between lenders and applications.
Understanding Borrowing Capacity
Indicative borrowing capacity may be relevant when preparing for an investment-property lending enquiry.
Many investors begin by reviewing how much they may be able to borrow before searching for properties.
Lenders generally assess:
- Income
- Existing debts
- Living expenses
- Number of dependants
- Credit commitments
- Serviceability requirements
Online calculators may provide indicative estimates based on the figures and assumptions entered.
However, borrowing capacity calculators are guides only and are not a loan approval, formal lender assessment or indication of the amount a person will be able to borrow.
At the time of publication, APRA requires authorised deposit-taking institutions to apply a mortgage serviceability buffer of at least 3 percentage points above the applicable interest rate when assessing serviceability for new housing lending. Individual lender policies, assessment methods and any permitted exceptions may vary.
Why Cash Flow Is an Important Consideration
New investors often focus heavily on property prices.
Purchase price is one consideration, alongside expected rental income, loan repayments and ongoing ownership expenses.
Owning an investment property may involve ongoing costs such as:
- Loan repayments
- Council rates
- Water rates
- Insurance
- Property management fees
- Maintenance expenses
Understanding these costs before purchasing may help investors compare potential ownership costs with their available income, savings and household budget.
Investors may choose to compare illustrative scenarios involving different rental income, vacancy periods, interest rates and ownership costs. These scenarios are not forecasts or guarantees.
Researching Property Location
Location is one of the most discussed aspects of property investing.
Factors investors often review include:
- Transport access
- Employment hubs
- Schools
- Shopping centres
- Infrastructure projects
- Population growth
These factors do not predict property performance, and FinanceCorp does not recommend particular suburbs or properties.
No location can guarantee future performance.
Independent research into local market conditions may provide general background information about different locations.
Property markets can vary significantly between suburbs, even within the same metropolitan area.
Understanding Rental Demand
Rental demand is another important consideration.
Vacancy periods and rental income may differ between properties and locations and cannot be predicted or guaranteed.
Investors often examine:
- Vacancy rates
- Rental yields
- Population growth
- Local amenities
Past performance does not guarantee future results.
However, understanding local rental conditions may provide general context for independent property research.
New Property Versus Established Property
Many investors consider whether to purchase a newly built property or an established property.
Each option has different characteristics.
New properties may offer modern features and lower maintenance requirements in the early years.
Established properties may provide access to more mature locations and existing infrastructure.
The characteristics of each option should be considered alongside independent property, legal, taxation and financial advice where required. FinanceCorp does not recommend whether a new or established property should be purchased.
The relative importance of different property characteristics will depend on the investor’s circumstances and the advice received from appropriately qualified professionals.
Understanding Loan Features
When reviewing investment-property lending options, borrowers may encounter features such as:
- Fixed interest rate options
- Variable interest rate options
- Offset accounts
- Redraw facilities
- Loan splitting arrangements
Investors should obtain tax advice from a registered tax agent or suitably qualified accountant before using redraw funds or mixing private and investment borrowing within the same loan.
Tax treatment may depend on how borrowed funds are used and the borrower’s circumstances. Taxation matters should be confirmed with a registered tax agent or suitably qualified accountant.
Consider How Long the Property May Be Held
Property ownership may involve changing interest rates, property values, rental conditions, expenses and personal circumstances over time.
Questions about investment timeframes, risk tolerance, expected returns or whether property fits within a broader financial plan should be discussed with an appropriately licensed financial adviser.
FinanceCorp can separately provide credit assistance relating to available investment-property lending options.
Professionals Who May Be Involved
Property investment often involves input from multiple professionals.
Depending on individual circumstances, investors may seek support from:
- Licensed accountants or tax agents
- Solicitors or conveyancers
- Property managers
- Mortgage brokers or authorised credit representatives
Each professional plays a different role.
Tax matters should be discussed with a registered tax agent or suitably qualified accountant. Legal matters should be discussed with a solicitor or conveyancer authorised to provide the relevant advice. Questions about investment suitability, portfolio construction or investment strategy should be referred to an appropriately licensed financial adviser.
Key Considerations Before Purchasing an Investment Property
Preparing to purchase an investment property in Western Australia involves understanding lending requirements, ownership costs, cash flow considerations and investment risks.
Investment-property loan requirements, features and assessment outcomes may vary between lenders and applications. Understanding lender requirements, indicative borrowing capacity, upfront costs and ongoing ownership expenses may help borrowers prepare for an investment-property lending enquiry.
Property investment can be a long-term commitment. Prospective investors should obtain appropriate property, legal, taxation and financial advice before making a purchase decision. FinanceCorp’s role is limited to providing credit assistance and general lending information.
Depending on broker accreditation, lender-panel access and the type of application, FinanceCorp may provide credit assistance relating to investment-property loans, home loans and refinancing.
Contact FinanceCorp on 1300 410 784 or admin@financecorp.com.au to discuss an investment-property lending enquiry, indicative borrowing capacity, lender requirements and available options from the FinanceCorp lender panel. Any borrowing estimate is indicative only. Any lending recommendation or application remains subject to applicable enquiries, verification, preliminary assessment, lender criteria and approval.
FinanceCorp is based in Cockburn Central, Western Australia, and provides credit assistance under Australian Credit Licence 395037. View FinanceCorp’s complaints and compliments process for further information.
Important Information
This article provides general information for educational purposes only. It does not take into account your objectives, financial situation, needs, investment objectives, borrowing requirements or personal circumstances. It is not a recommendation to purchase property, invest in real estate, select a particular property or location, apply for a particular loan or adopt any investment strategy.
FinanceCorp provides credit assistance under Australian Credit Licence 395037. FinanceCorp does not provide property selection, investment strategy, portfolio construction, financial planning, taxation or legal advice. Available lenders and products depend on broker accreditation, lender-panel access, the type of lending requested, information provided and the consumer’s circumstances. FinanceCorp does not compare every lender or loan product in the market.
Information about property markets, rental demand, borrowing capacity, interest rates, loan features, lending policies, rental yields, property values, rental income, capital growth, equity, cash flow or property performance is general only. These matters may change and should not be interpreted as predictions, recommendations or indications of future performance.
Any taxation information is general only. Seek advice from a registered tax agent or suitably qualified accountant regarding taxation matters. Questions about investment suitability, risk, portfolio construction or investment strategy should be directed to an appropriately licensed financial adviser. Legal and property matters should be discussed with appropriately qualified professionals.
Examples and scenarios are illustrative only and should not be relied upon as an indication of approval, borrowing capacity, rental income, property performance, future returns or lending outcomes. All lending is subject to applicable enquiries, verification, preliminary assessment, lender criteria, approval, terms, conditions, fees and charges.