Questions to Ask yourself

6 Questions to ask yourself before buying an investment property

Australia is navigating a pandemic. The Reserve bank keeps interest rates at a record low and ends stimulus as the Australian economy recovers. Inflation surges as housing and fuel lift the consumer price index. Naturally, you may be asking yourself, ‘Should I be investing in the property market?’

Everyone has different reasons for getting into the market, such as wanting to reduce your tax or keep up with inflation. But these shouldn’t be the primary reasons for investing in property. 

Before making any decision, it’s important to take a step back and objectively consider your position. 

As a financial adviser, a big part of my job is to provide clarity and insights. I work in a partnership with my clients to help them establish personalized plans to achieve their financial goals. 

Here are my top questions to ask yourself: 

1. What are your financial goals? Capital gains or rental return 

You need to have an overall picture of how the property will fit into your financial goals and whether you are wanting the investment to generate income or growth. 

Some people may be hoping to create passive income to fund their living expenses. For others, the goal is more about long-term growth. Or maybe it’s about building their portfolio for retirement and the next generation. 

Once your financial position is established you can set realistic goals and create an investment strategy, as well as scenario planning. 

2. Have you done your budgeting? 

Although you may have enough for the deposit on a property you also need to consider other costs that will pop up along the way, which is where cash flow comes into the picture. Property is an illiquid asset which means the equity is difficult to access quickly. 

How much of your day-to-day expenses are you willing to sacrifice to service a loan on an investment property? Have you considered the future interest rate increase which will increase your loan repayment? If you couldn’t find a tenant or you had to reduce the rent – would you still be able to meet your lifestyle and loan repayment?  

Since 2020 when the pandemic started, many of my clients lost their tenants which put their cash flow under major strain, causing stress for them and their families. So, digging deep and asking the tough questions upfront can mitigate added stress down the line. 

3. Who owns the property? 

In Australia, over 65 percent of buyers purchase their property in their own name. But other ownership structures may be suitable for you, depending on your intentions with the property investments and how it fits into your wider portfolio. Individual, joint, company, SMSF, trusts can result in significantly different tax implications when it comes to rental income and capital gains. 

4. Do you need to diversify the portfolio? 

Invest in more than just property or one type of property so your money isn’t all in one market. If you invest in one market, it’ll increase your risk and means your portfolio isn’t diversified. To invest well, you need to find investments that fit your financial goals, investing time frame, and risk tolerance. 

5. What’s your backup plan if anything goes wrong? 

You need to ask yourself – if your circumstances changed unexpectedly due to an injury, illness or job loss would you be able to make up the shortfall? Do you have protections in place like insurance to ensure you can keep up with the loan repayments? Or will you be willing to sell your property? 

6. Have you done your research? 

Before you make any investment, you need to do your research. 

Sometimes you don’t know what you don’t know until you get into the weeds.  

Please speak to your financial adviser or contact BOA private wealth on 1300 952 286 to ensure you have an appropriate financial plan in place for your long-term wealth creation. 

Written By Michelle Li. 

About the author: Michelle Li – Chief Advisor of BOA Private Wealth

She commenced her financial planning career in 2012. She has extensive experience in financial planning and in the advisory industry. She worked as a private and premium bank financial adviser in well-known institutions like Westpac and ANZ. She specializes to provide holistic financial advice including superannuation, SMSF, investment, risk management, retirement planning, wealth creation, and personal insurance.
Michelle has built a great reputation and strong relationship with her clients over the past 10 years. Michelle holds a degree of Master’s of Financial Planning and is a voting member of the FPA (Financial Planning Association).
Outside work, Michelle is married with one son. She enjoys painting, piano, and spending quality time with family and friends.

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The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives, and requirements and seek financial advice before making any financial decisions. 

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