Own a home, invest in another. Who says you can’t do both?
You don’t need to be loaded to have an awesome property portfolio. You just need to get smart.
Use your home to buy another.
So, you’ve already got a home - win. That means you might be able to use the equity in your current home to top up your deposit.
What is equity?
Equity is the difference between the money you owe on your property and what a lender thinks your property could sell for.
If you had a loan balance of $500,000 and you had your property valued at $800,000 then you would have $300,000 of equity and a loan-to-value ratio (LVR) of 62.5%
Accessing your equity
You’ll need to work out your Loan-to-Value Ratio (LVR). You just need to have a valuation done on your property (tip, your broker can help with this). From there, a lender will use your LVR to figure out how much equity you have and how much you’ll be able to borrow.
Deposit sizes and the requirements you have to meet vary from lender to lender, but the rule of thumb is a 10-20% deposit. We have access to a panel of over 60 lenders so you’re in with a pretty good chance of finding a loan that will work for you.
Don’t forget, equity is not free money. When you access your equity your loan balance will increase and so will your repayments.
Nail your budget.
You don’t need to be mega-rich to have a side hustle investing in property. Once you’ve nailed your budget, you’re halfway there.
It’s all about knowing what costs you’re up for and making sure you’re prepared. An investment property has a lot of the same initial costs as a property you live in, but there are a few ongoing costs you need to have on your radar.
Borrowing power vs buying power
Straight talk; your borrowing capacity (aka the amount of money the bank or lender will lend you) is not the same as what you can spend on your new property. Your broker can help you work out the fees and costs that apply to you so you’ll know in advance what your repayments will be and how much you can really spend on your new property.
Some things to consider
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You never know what’s going to happen, so it’s good to have landlord insurance. No one wants to be out of pocket for a flood-stained apartment or tenants who won’t pay rent.
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This one is paid annually by the owner of the land.
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Council rates change depending on where your property is located so make sure to do your research.
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You’re going to want a good property manager - they’re worth their weight in gold.
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Being an owner means you’ll want to keep your investment looking its best.
Cashflow aka show me the money!
To really be an investing guru you’ll need to absolutely nail your property investment strategy.
Negative gearing
Negative gearing is a way of minimising your taxable income. A property investment with negative cash flow means the expenses you’re paying on the property are greater than the income you get from the property. Don’t get too excited though, if you’re making a loss on your investment property you’re losing money, so you’ll need to make sure you have other income to fund your expenses. If you sell your property for a profit, the tax man collects on the capital gain.
Rental yield
Rental yield is the money you earn from rental income minus any expenses you have to pay. Rental yield can be calculated as a gross percentage (before expenses are deducted) or as a net percentage (with expenses included).
Gross rental yield = (annual rental income / total property cost) x 100
Net rental yield = (annual rental income - annual expenses) / (Total property cost) x 100
Choosing the ultimate investment property.
As a property investor the dream is a high yield property in a location with big capital gains, strong rental return and low maintenance costs - not asking for much.
But, what if your state is seriously expensive? Have you thought about investing interstate? We think it’s worth a look.
Do your research
Ok, so you don’t know the market as well as you know your own state, but with bit of research you’ll soon know what’s worth your time.
Use average house prices for that state to know if what you’re looking at is good value. Then, consider any extras the property has that might mean capital growth.
Gather your posse
It’s not always possible to view properties. Read carefully, buyer’s agents are your new best friend. Say you’re living in Sydney and you’ve found a great property in Adelaide; you could take time off work, hop on a plane and go see it or you could use a buyer’s agent. A buyer’s agent will check out the property and suburb and let you know if it’s a good fit for your strategy. You will need to pay your buyer’s agent a commission fee.
