Can You Afford an Investment Property?

Buying an investment property can be a powerful wealth-building strategy, but only if you go in with your eyes wide open.

While property can generate long-term capital growth and rental income, it also comes with a range of financial responsibilities.

Here’s how to determine whether you’re financially ready to invest.

Understand your borrowing capacity

The first step is knowing how much you can borrow. Your borrowing capacity depends on your income, expenses, existing debts, and credit history. Business Initiatives can assess your situation and give you a realistic picture of what lenders could approve. In addition to reviewing your current income and liabilities, your broker will consider whether you plan to use a cash deposit or equity from an existing property.

Factor in upfront and ongoing costs

Investing in property isn’t just about mortgage repayments. There are significant upfront and ongoing costs to consider. These may include stamp duty, legal and conveyancing fees, loan setup fees, pest and building inspections, and possibly lenders mortgage insurance (LMI) if your deposit is under 20%.

Once you own the property, regular costs can include council rates, water charges, strata or body corporate fees, property management fees, landlord insurance, maintenance, repairs, and land tax in some states. If your property is vacant, you’ll still need to cover these costs without rental income, so creating a buffer to cover at least three months of expenses is highly recommended.

Budget realistically for repairs and renovations

It’s easy to underestimate the cost of repairs or upgrades. Whether it’s cosmetic work to boost rental appeal or essential repairs like plumbing or roofing, costs can quickly add up. Always overestimate renovation expenses and build a contingency fund. Renovations can also add to your borrowing power if managed correctly.

Understand rental income expectations

When lenders assess your loan application, they factor in projected rental income, but often only at 70 to 80 per cent of the estimated figure to account for vacancy and expenses.

Check recent rental listings for similar properties in the area to get a realistic sense of income. Consider the suburb’s vacancy rate and how seasonal factors might impact demand. Some suburbs have high rental turnover or drop in popularity during certain times of the year.

Plan early

Working with Business Initiatives early in the process gives you clarity and confidence. The key is planning well, understanding your cash flow, and building a buffer for the unknowns.

Talk to Chris Sedgmen at Business Initiatives today on (08) 8431 7444 to find out what’s possible for you.

Chris Sedgmen (Credit Representative Number 483511) is authorised under Australian Credit Licence 532891 (Loan Initiatives Pty Ltd). This is general information only and is subject to change. Your complete financial situation will need to be assessed before acceptance of any proposal or product. ABN 58 631 461 446