Things to know before taking out your 1st mortgage for an investment property

Wednesday, December 15, 2021

Buying an investment property involves a few different decisions compared to buying a property to live in. Its more about the numbers, and less about falling in love with the kitchen. We’ve put together a quick guide on a few things you should know about buying your first investment property. 

Whether you are buying an investment property to add to your property portfolio, or if you’ve decided your first purchase will be an investment property, location is a key factor in determining your strategy. it’s important that you find a location that will give you strong capital growth and whilst also providing a solid rental return. 


Location, location, location 

Choosing the right location for a Residential or Commerical property is one of the most important factors. It should be easily accessible via public transport and other amenities, so it will draw more interest from a wide range of prospective tenants. 

When reviewing locations, you should start with online research, reviewing properties listing, reading articles on which suburbs are due to grow. Many successful property investments get ahead of the field by forming strong relationships with reliable real estate agents, so they can be alerted when a possible match is available. 


Create an Investment Plan  

Why are you investing? 

Decide if this rental property is eventually going to be your primary place or residence in the future or if it’s going to be the start of your property portfolio. 

Understand your financial position 

It is important to know what your serviceability is before looking at properties to invest in. Considering your income and expenses. Use our budget planner to guide you, or speak to one of our mortgage brokers for a full assessment of your options 

Calculate your potential return 

The return on your investment can also be referred to as rental yield. This is calculated by measuring the gap between your overall cost and the income you receive from renting. This will determine if you are negatively gearing where the expenses associated with owning a property is greater than the rental return or if positively gearing where the rental return covers the expenses and provides a surplus cashflow. 



Know how much you can spend before looking for a property. There are initial costs and ongoing costs associated with most property purchases. Speak to us regarding obtaining pre-approval before you start your search for your property. 

  • Initial Cost 
  • Deposit 
  • Loan establishment fee 
  • Lenders mortgage insurance (LMI) 
  • Stamp duty  
  • Conveyancing/legal fees 
  • Building and pest inspection 

Ongoing Cost 

  • Rates/government taxes 
  • Insurance 
  • Mortgage repayments 
  • Body corporation fees 
  • Utilities 
  • Property management fees 
  • Repairs and maintenance 


Do you need 20% Deposit

A deposit on an investment property can often be 10% of the purchase price, or sometimes less. Paying less would mean paying lenders mortgage insurance (LMI) which is an added cost. 

Loan Types 

Variable Rate Loans
With an investment loan, interest is usually tax deductible. So even though rates could fluctuate, it gives you the ability to try and maximise your property’s profitability. Most of these types of loans give you the flexibility to make extra repayments and have a redraw facility which you could redraw later to do renovations and improve the value of the property or use as a deposit for another property. 

Fixed Rate Loans
If you are on a tight budget & need to know what your outgoing loans cost would be, this loan type would be ideal. You will know in advance what your outgoing finance cost will be, and these will remain the same throughout the fixed interest period.  

Split Fixed/Variable
This combination will give you the best of both options. Allowing you to make additional repayments and redraw them when needed, whilst limiting your ongoing loan cost. 

Interest Only Loan
This type of loan allows you to minimise mortgage repayments and outgoing costs in the short term as you only pay the interest on the loan (tax deductible). Your mortgage repayments will be less compared to a principal and interest loan. However, with this type of loan you will not pay down the principle of the loan and increase your equity if the property doesn’t increase in value.  


Loan Features 

Offset Account
An offset account is a transaction account that’s attached to your loan. It can save you money on the interest on your loan and help you pay off your loan sooner because the money in the transaction account is offset daily against your loan balance. So, you only pay interest on the difference. For eg: loan is $450,000 and there’s $100,000 in your offset account, you’ll pay interest only on $350,000. 

Redraw Facility
This facility allows you to make extra repayments on your home loan and then take out the extra repayments you’ve made if you need to use it for any reason eg: renovations etc. 


Hopefully, this gives you some pointers on how to plan your first investment property purchase. Working with one of our brokers will take a lot of guesswork out of the process, and most of the time our service is free! Don’t hesitate to get in touch, we would like to be part of your team to grow your property portfolio.