When you're buying an investment property, understanding how to assess investment risk can make the difference between a profitable venture and a costly mistake. For Queensland public sector employees looking to invest in real estate, having a solid grasp of risk assessment will help you make informed decisions about your property investment strategy.
Understanding Your Borrowing Capacity and Loan Amount
Before diving into any investment loan application, you need to understand exactly how much you can borrow. Your borrowing capacity depends on several factors:
• Your current income and employment stability
• Existing debts and financial commitments
• The loan to value ratio (LVR) you're comfortable with
• Your ability to service both your home loan and rental property loan
As a public sector employee, you typically have stable employment, which lenders view favourably. However, it's crucial to calculate investment loan repayments realistically, factoring in periods when your rental property might be vacant.
Research Property Markets and Rental Yields
Thorough research is your first line of defence against investment risk. When evaluating whether to buy a town house, apartment, or stand alone dwelling, consider these factors:
- Rental yield potential - Calculate both gross and net rental yields
- Local employment opportunities that drive rental demand
- Infrastructure developments planned for the area
- Population growth trends in your target location
- Vacancy rates for similar properties
The property market can be unpredictable, so diversifying your research across multiple suburbs and property types can help minimise risk.
Evaluate Different Investment Loan Options
Working with a finance & mortgage broker gives you access to investment loan options from banks and lenders across Australia. This broader access means you can compare:
• Variable interest rate versus fixed interest rate products
• Investment loan interest rate offerings
• Loan features that suit your investment goals
• Lenders mortgage insurance (LMI) requirements
• Interest rate discounts available to public sector employees
A finance & mortgage brokers can help streamline the application process while ensuring you understand all the investment property loan features available to you.
Factor in All Costs Beyond the Purchase Price
Many first-time property investors underestimate the additional costs involved in buying an investment property. Your investment risk assessment should include:
• Stamp duty (which varies by state and property value)
• Legal fees and building inspections
• Ongoing maintenance and repairs
• Property management fees if you're using an agent
• Insurance premiums
• Council rates and other statutory charges
For your first investment property, these costs can add up to thousands of dollars beyond your loan amount.
Consider Your Tax Position and Negative Gearing
Understanding the tax implications of property investment is crucial for risk assessment. Negative gearing occurs when your rental income is less than your investment property expenses, creating a tax-deductible loss.
While negative gearing can provide tax benefits, relying on it as your primary investment strategy carries risks:
• Tax laws can change
• You're depending on capital growth to make the investment profitable
• Cash flow remains negative, impacting your financial position
Consider how negative gearing fits into your broader property investment strategy and whether you have sufficient cash flow to sustain it.
Plan for Your Investment Property Portfolio Growth
If you're planning to build an investment property portfolio beyond your first investment property, your risk assessment should consider:
• How additional properties will affect your overall borrowing capacity
• Geographic diversification across different markets
• Mix of property types (apartments, town houses, houses)
• Timing of future purchases
• Exit strategies for underperforming properties
Your finance & mortgage broker can help you understand how lenders assess multiple investment properties and what this means for future applications.
Getting Professional Support
Applying for an investment loan involves significant paperwork, including bank statements, income verification, and detailed property information. Having professional support throughout the application process can help you:
• Access better interest rate options
• Understand complex loan features
• Avoid common application pitfalls
• Make informed decisions about property selection
Remember, buying a rental property is a long-term commitment that requires careful planning and ongoing management.
Investment risk assessment isn't about avoiding all risk – it's about understanding and managing risk appropriately for your circumstances. By taking a methodical approach to evaluating properties, loan options, and your financial position, you can make informed decisions that align with your investment goals.
Call one of our team or book an appointment at a time that works for you to discuss your investment property goals and explore the loan options available to Queensland public sector employees.
