Once you’re settled and financially secure in your home, you might be ready to start thinking about purchasing a second property as an investment.
Planning ahead
Make sure your first property is secure before looking towards the purchase of a second property. If you are struggling to manage payments on your first property, expanding your property portfolio will not improve your financial position. You will need to demonstrate to a lender that you will be able to manage two home loan repayments, and you will need a back-up plan for any unforeseen issues such as temporary unemployment.
Choosing the right property for the right price
Start by calculating whether you can manage additional payments and responsibilities. You need to calculate in advance how much rental income you will need to make in order to cover loan repayments. From here, you need to look at the type of properties you can afford, and work out how much rental income they will bring in. If the incoming figures don’t balance outgoing expenses, you will need to reconsider how much money you can borrow or the type of rental property you can afford.
Remember to calculate in all the additional costs of purchasing a property – building inspections, stamp duty, legal fees and insurance.
Boosting your borrowing power
When looking for a home loan, you can expand your options by reducing your current debts, increase your current property repayments and saving a deposit. A lender will look upon you more favourably, if you can demonstrate that you are a good risk, with regular savings, a secure budget and growing equity.
If you have been in your first home for long enough to build up equity, you may have the option of using this equity to secure finance against the value of your home, which you can use to invest in a second home. There are three ways you can finance the purchase using equity: refinance your mortgage; take out a line of credit; or secure a bridging loan. When you refinance your mortgage, your home will be revalued and then you can withdraw cash based on the equity in relation to the new value. A line of credit loan is a separate home loan, that extends credit based on the equity in your property. You can decide how much of the credit limit you need to use, and only pay interest on the amount you do use. A bridging loan is most useful if you wish to sell the first property after purchasing a second property.
Seek expert assistance
Balancing two properties can be challenging. An investment property has different requirements than a residential property, and it can be hard work to manage tenants while maintaining the property. A real estate agent has the resources to keep the property tenanted, and deal with any issues such as emergency maintenance.
You also need to stay on top of your financial situation to ensure that the investment property does work out to be a profitable investment. A mortgage broker or financial advisor can provide expert guidance so you can make the best of your investment.
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