Note from the Editor:

This article was written for the SDC by psychologist and member @Jan A. Jan A. works part-time, taking on clients under the Medicare Mental Health Care Plans. She works with people of all ages, from children to seniors!

This article is for those who are considering investing in a property to rent out. The information is designed to assist people who will need a mortgage to buy an investment property. If you can pay cash for a property, some of the advice may still be relevant for you.

Hopefully, some of the information in this article about navigating the property market will be useful. Please note that advice expressed in this article should not be taken as the only view or even the best one for you. It is not to be taken as professional financial advice. I am only passing on what I have learnt about this form of investment. Check with other people who have property investment experience. Consider their views, take on board what is useful for you and discard the rest. Practical experience provides the most useful information. If any readers have experience in this investment field and would like to contribute to this information, please add your comments to benefit others.



Mortgages: When buying a property, if you have a deposit (usually 10% of the purchase price) and the funds to pay the federal government’s ' stamp duty' tax, you will need a mortgage for the rest. If you do not have sufficient funds, you can get a mortgage for 110% of the purchase price. Interest rates are higher for the 110% mortgages, but they allow you to get into the market.

When looking for a mortgage, remember that lending institutions are businesses, and as such, they are likely to give you advice that is slanted towards what is best for them, not necessarily what is best for you. Look around for the best deal to suit your circumstances. Take into account both the interest rate and other charges levied on your mortgage by the bank. Some lenders charge higher interest for investment property loans. Note any costs related to mortgage insurance that may be required by the bank. A useful hint is to pay fortnightly rather than monthly because you will make an extra couple of payments each year, reducing your mortgage without stretching your budget too much.



Lenders: My advice is to use lenders who have a physical site accessible where you can deal with a staff member in person. I suggest avoiding virtual (online) lenders that do not have a physical site that you can attend. With virtual lenders, all communication is by post, email and phone. They can take days to get back to you, even if the matter is urgent. If there is a problem, it is difficult to get it sorted out promptly. These virtual lenders tend to offer lower-interest loans at the start, but they have a lot of hidden extra charges that physical lenders often do not have. These charges can eat up a substantial proportion of the savings on interest rates. Check out these additional charges before signing anything. I tried a loan from a well-known virtual lender once, but I found their charges so high and their service so poor that I consolidated the loan with another mortgage I had with a physical bank. While the interest rate with the physical bank was slightly higher, the charges were much less and the convenience was much better.

Another reason not to use virtual lenders is the frightening increase in the number of online scams. My preference is to do all property-related banking at the enquiry counter on the bank’s premises. Emailed instructions purporting to be from your bank telling you to transfer payments into an online account should be treated as suspect. Always check with the bank first. If you transfer money online to a scammer, you may never get reimbursed for the loss. These scam emails look real, and they contain your reference details, but the information has been stolen from the bank’s records and is being used to deceive you into transferring money to low-life scammers who are most likely located overseas. The more urgent the request is, the more suspect it is and the more likely to be a fake. Always check with the bank before doing any online transfers. This is not to say that physical banks are exempt from scams. All banks report a constant barrage of electronic attacks by organised cyber criminals. In this risky environment, I prefer to reduce my online financial presence as much as possible. This includes not using the bank’s app on my phone. Of course, the closures of physical bank branches can make it a bit difficult to get to their premises, but safeguarding your property transactions is worth a longer trip to the bank’s branch.



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