12 Steps To Buy A Rental Property That Cash Flows Positive in Australia

There are 12 steps you need to take to buy a great rental property that cash flows. This guide will teach you all 12 so you’re ready to purchase an investment property.

Building a portfolio of investment property was easily the best financial decision I’ve ever made. It's allowed me to create a snowball effect of cash flow from my rental properties that lets me buy additional properties and keep my monthly cash flow growing.

However, before I got to a portfolio of 12 properties, I had to take the plunge and buy my first property.

I remember how nervous I was about spending such a large portion of my net worth on one thing. I was worried whether I was actually buying a good deal — and if I’d be able to maintain the property to keep it rented.

It ended up working out for me, but I had to learn a lot of lessons the hard way. If I knew then what I know now, I would’ve saved thousands of dollars — and hours and hours of pain.

Becoming a real estate investor in Australia isn't for the faint of heart. But done right, it's worth it 10000x over.

If you’re considering purchasing your first rental property, this guide will make it a whole lot easier (and less painful) than it was for me! Seriously :)

How To Buy A Rental Property

Step 1: Set Your Goals

This step is often overlooked, but it’s incredibly important. After all, it’s very hard to build a successful portfolio if you don’t know what success actually looks like.

Ask yourself, "Why do I want to own an investment property?" You might have answers like "I want to quit my 9-5 job" or "I want to be able to travel the world" or "I want $100,000 in extra income per year."

The answer to the question makes it easier to pick your long-term strategy. If you want to replace your job so you can travel, you might decide that your goal is to create $10,000 a month in cash flow to comfortably replace your job.

If you decide to invest in apartments, that might mean accruing 40 apartments that generate $250 per month in cash flow. You could build a portfolio as small as 10 4plexes.

Or you could buy houses that generate $600 per month, equating to around 17 houses.

Whatever your goal is, it’s important to have one, so you can pick a strategy that is able to get you there in a time that’s acceptable for you.

Personally, my partner and I have a goal of reaching financial freedom by generating $30,000 a month in passive income. We are going to achieve this goal by building a large portfolio of apartments across Melbourne and Brisbane. We are on pace to have 80 apartments by the end of 2025, and should reach our goal in 2030.

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Step 2: Set Your Budget

Before you swing into action, you need to understand what you can afford in an investment property.

Setting a budget is actually simpler than most people expect, as there are only two things you need to consider when it comes to the down payment.

First, ask yourself how much cash you’re actually comfortable investing. Some people are comfortable putting upwards of 50% of their wealth in property, while others never want real estate to be more than 20-25% of their total wealth.

Pick a number that works for you, then multiply it by five to get the total amount of property you can afford (the bank will cover 80%).

The second question you need to ask yourself is whether you’re willing to house hack.

House Hacking? It is when you purchase a multi-family property, then live in one unit while renting out the others.

It's a common practice in the US, though, is increasingly becoming more popular in Australia as property and rents continue to increase.

House hacking was how I got started — if you’re willing to live in a duplex, triplex, or 4plex, I can’t recommend it enough.

How To Buy A Rental Property With No Money Down

If you’re reading this, don’t have a ton of capital to invest, and aren’t interested in house hacking, there’s still a way for you to get started in real estate!

While it can be difficult to accomplish, there are deals out there you can get into for no money down.

In Australia, buying a rental property with no money down is possible through creative strategies like vendor finance, where the seller acts as the lender. This method is often more feasible with properties owned outright by the seller, allowing them to earn interest on the loan in addition to the property's sale price. This arrangement can benefit sellers seeking a steady income stream, such as retirees. It's essential to approach these deals with thorough research and possibly legal advice to ensure a mutually beneficial arrangement.

• Vendor Finance: The seller finances the purchase instead of a bank, beneficial for properties owned outright.
• Joint Ventures: Partner with investors who have capital, sharing ownership and profits.
• Lease Options: Secure the option to buy at a later date, allowing time to raise funds.
• Rent-to-Own Agreements: Rent the property with an option to purchase, part of rent goes towards the down payment.

Each strategy requires careful negotiation and legal considerations. Consulting with a real estate professional in Australia is recommended to navigate these options effectively.

Step 3: Learn how to forecast cast flow

If you’re buying an investment property, it’s probably for the monthly income. However, not all properties listed for sale will actually cash flow — many will have more monthly expenses than income.

Here in Australia, this is commonly referred to as a 'Negatively Geared' property.

Before you can buy a property, you MUST be able to model the financials so you can determine whether it’s A) a good deal and B) will help you meet your goals.

To model your properties, I recommend using this free rental property calculator the Investment team at Minty Real Estate built.

Once you’ve mastered the calculator, you’re ready to choose a market and start modelling properties to find deals that will help you hit your financial goals.

Step 4: Choose a market

Now that you’ve set your budget and you know how to model investment properties, it’s time to choose a market.

I’d recommend that you start with your own market and see if it can meet your goals. It's much easier to invest in your backyard than somewhere else.

Start by modelling a few different types of properties (house, apartment, duplex, 4plex, etc) in nearby suburbs and cities with the rental property calculator and see what’s coming out cash flow positive.

If you find deals providing a minimum of 5% cash-on-cash return, there’s a good chance you can make things work in your own market.

If not, I’d recommend asking some local investors what markets they’re investing in — namely because if you do end up investing out of state, you’re going to need referrals for great real estate agents, rental property managers, and contractors.

You can also use Minty to find a great buyer’s agent in any market you choose, who can make these introductions for you.

Step 5: Get Pre Approved For Financing

Now that you’ve picked a market, the last thing you need to do before you start looking at properties is to get pre-approved for financing.

I recommend asking your real estate agent for a mortgage broker that they trust, as a good lender can save a deal from unexpected financing problems that an inexperienced lender wouldn’t be able to handle.

Your mortgage broker will ask for some basic financial information then issue a pre-approval for the maximum amount that that you can purchase.

Getting pre-approved won’t impact your credit, but it will make sellers take your offer seriously, because it shows them you’re actually able to purchase their home. In competitive markets, sellers often won’t accept your offer if you’re not pre-approved.

If you have one takeaway here... get PRE APPROVED! It saves a ton of headaches down the road.

Step 6: Start looking for properties

The time has finally come: You’re ready to seriously look for properties! Congratulations!

The two main ways to find investment properties are on market and off market.

Finding properties on market

Properties that are on the market are listed by real estate agents, and they get synced to popular websites like realestate.com.au, domain.com.au and more.

Investment properties can be competitive, so I’d recommend setting up your alerts on those platforms so you get notified ASAP.

This means you get an email the moment a home that meets your criteria hits the market, so you can quickly evaluate it and decide if you want to make an offer.

>> Use an investor-focused buyer's agent to purchase your next investment property

Finding properties off market

Off-market properties are investments that aren’t listed for sale on those listing sites. You’ll need to hunt these down yourself — or be connected to other investors.

If you’re interested in off-market property, I’d recommend you start by looking for properties in your market that have for-rent signs in the yard, but aren’t on any online rental sites.

These landlords haven’t kept up with new technology, and there’s a good chance their properties are rented below market and they might be interested in selling.

I found the second property I ever purchased using exactly this method.

Here are a few other ways to find off-market properties:

• Going to real estate investor meetings and buying from other investors
• Buying from investors that have property under contract
• Sending direct mail to rundown property you’re interested in
• Cold calling owners of property you’re interested in

Step 7: Start making Offers

Once you’ve found a property that meets all of your goals and seems like a good investment, it's time for you to make an offer!

Here are some tips and tricks that can help get your offer accepted for the lowest possible price:

• Don’t be afraid to offer significantly below list price. We’re looking for deals, so offer a price that meets your return, and don’t worry about losing the deal. I’d rather wait for a good deal than buy something average now.
• If your offer gets rejected but the property is still on the market two weeks later, resubmit! The seller might change their mind.
• If you can swing it, shortening the inspection period can make sellers more likely to choose your offer, as they will find out sooner if the deal is going through.
• Send a custom letter with your offer introducing yourself and your goals with the property — make sure the letter paints you in a good light, so the seller is confident you can close!

Step 8 : Inspections

Congratulations on getting a property under contract! Now you just have to make it through inspections and financing — then you’re ready to settle.

In Australia, successfully navigating property inspections is a pivotal step for investors.

Engaging in thorough building and pest inspections is not just advisable but essential, offering a safeguard against unforeseen expenses that could impact the investment's profitability.

Newcomers to real estate investment are encouraged to hire licensed inspectors for detailed reports, ensuring a comprehensive understanding of the property's condition.

For seasoned investors, leveraging a trusted team of specialists, including builders, electricians, and pest control experts, can streamline the process, providing clear insights into potential renovation needs and costs.

Step 9 (optional): Choose a property management company

If you’re investing out of state — or don’t have the time to manage rental property — you will need to choose a property management company.

Ask your agent and other investors for referrals, then schedule some interviews. Here are some things you should always ask when evaluating prospective property managers:

• How they do their accounting, and ask for a sample report
• Their fee structure for management
• Their hourly rates for different maintenance services
• If you can interview some of their current clients (property owners)

Once you’ve picked a property manager, you will want to loop them in on the settlement date, as they will actually be the ones getting the keys on settlement day.

Step 10: Locking in your financing with a mortgage broker

Once you go under contract, your mortgage broker will ask you for much more detailed financial information, and run a hard pull on your credit to verify everything.

Then they’ll conduct an appraisal of the property to make sure it's worth at least what you’re paying for it.

Be ready for a lot of back and forth — particularly when it comes to sending requested documents — but nothing should be overly difficult.

Step 11: Settlement day!

Congratulations on making it to settlement day!

Settlement day might not be what you’re expecting, as more and more closings are taking place virtually. Regardless of how or where it happens, expect to sign a ton more paperwork than you expect.

Settlement for the buyer and seller generally take place at different title companies (or virtually). If you’re using a property manager, you’ll probably never actually get a set of keys (the manager will collect them).

Take a moment to relax — finding and purchasing a great investment deal is a long hard journey, and you’ve done it!

Wooooooooooo!!

Step 12: Growing Your Portfolio

Now that you’ve closed on your property, if you didn’t hire a property manager, it’s important that you learn how to become a great landlord. Managing your tenants and maintaining your property will make or break your investments returns.

Once you get the hang of being a landlord, it's time to take what you’ve learned and repeat the process.

For most investors, the next step is simply starting the process over — i.e., looking for your next property while maintaining your existing portfolio.

Whichever path you take, I’d recommend checking out our complete guide to real estate investing, as it can help you grow your portfolio even faster!