From rent to riches: How to buy an investment property

Estimated reading time
 5 min

Learn how to:

• Fund your investment property purchase
• Find an investment property that’s right for you
• Start your investment property journey with the ANZ house inspection checklist

Thinking of buying an investment property? It’s an exciting move that can kick off (or expand) your investment portfolio.

Real estate is a common investment option offering more security than many other higher-risk investments out there. But before you dive in, there are some things that both budding and veteran investors should consider before making their next move. Our guide to property investment will take you through some of the key things you’ll need to think about when starting, or expanding, your property portfolio.

4 common paths to buying an investment property

When it comes to funding your purchase, there are a host of options at your fingertips. The tricky part is figuring out which one is best for you, so let’s have a look at the most common ways that you can fund your next property purchase:

1. Taking out a new home loan – A straightforward option is taking out another home loan, but first, you should suss out your borrowing power and take a look at our home loan repayment calculator to see what you can handle repayment-wise.
2. Using your equity – Another good option if you already own property is to use the equity in your existing home (equity = the difference between how much you owe and your property’s value). You can access your equity as either cash for the deposit of the investment property or by using the existing property as security with the new investment.
3. Getting help from family – If you’ve got folks that can help, or have recently gained an inheritance, you might be gifted the funds you need to build a deposit for your investment property purchase. You can also ask your folks to become a guarantor for your investment property. This means they can use the equity from their property to help you with your deposit.
4. Rentvesting – Another way into the property market for renters wanting to delve into the investment world. In a nutshell, rentvesting involves buying a property and renting it out to tenants while you continue renting elsewhere, or even living with family rent-free.

Answer the question of ‘where?’

There are many things to consider when buying an investment property, but one trumps them all: Location, location, location! Yes, the location of your investment property matters, a lot. For starters, it affects capital growth, which is your property’s value over time.

Secondly, it can influence the rental yield – which is the difference between the amount of rent you receive and how much your property is costing you. Many things can affect the value of your investment, but the below questions will get you started:

• What is the median price for properties in your suburb?
• What about rental prices in that area?
• Is it in a regional or metro area?
• What about closeness to public transport, the local library and other public spaces?
• What schools and educational institutes are nearby?
• Are there any plans for future developments going up in your area?
• Are there any incentives to move or live in the area that might increase interest?

It pays to do your research. Check out the ANZ property profile report and CoreLogic data to get you started.

Don’t forget about the property type!

Finally, the fun part – deciding on which property type will best suit your budget and goals.

• Apartments and townhouses – Typically, apartments and townhouses are popular investment options, and they can offer fantastic rental returns, but can come with some limitations on capital growth compared to a freestanding home.
• Freestanding homes – A freestanding home will generally offer a better return on investment in the long term. This is mainly because the extra land will appreciate in value over time
• Plots of land – Buying a plot of land in the right area to build on (or hold onto while you save for the build), can also offer a great way into the market.

  Brain hack

Remember to watch out for what’s known as ‘attentional bias’. This is where we fall into the trap of prioritising on your personal wants and likes while ignoring what the research says. You might love a certain area, but remember, you’re not the one who will be living there! Ideally, you’ll buy where there is strong demand and cater to what renters are looking for.