Any investment is a big decision and whilst investing in property can be financially rewarding, it also comes with some risks. Whether you’re buying your first investment or you’re on to your 5th property, discussing the following questions with your mortgage broker could help you avoid expensive mistakes.
Why am I investing in property?
Are you looking to build cash flow to retire on or looking to build equity through capital growth? You will need to have a clear investment goal in mind before you start, this will make reaching said goal easier. Discussing your goals with your broker will allow them to structure your finances to match.
Where is my deposit coming from?
Not many people have a spare $50,000 in their savings accounts for a home deposit, however many of us have access to equity in our owner occupied homes or other investment properties. Accessing this equity for a deposit can be a smart strategy. Lenders are cracking down on investment lending so be prepared to come up with a minimum deposit of 10%-20% of the purchase price.
How much can I borrow?
Unfortunately, there isn’t a simple answer to this question as each lender will assess your income differently. Your type of employment, the loan structure, current portfolio and potential rental income will influence a lenders decision and certain circumstances will fulfil some lenders criteria better than others. It pays to speak to your mortgage broker early for some guidance in preparing and to have them perform a borrowing capacity calculation.
What property should I buy?
There are a few factors that will influence this decision, such as your investment strategy and disposable income. It is important to understand how much money you have to commit per month to achieve your goals for capital growth and cash-flow. A lower yielding property may cost you more in the short term, yet have more potential for capital gains in the future. Buying the wrong property for your circumstances can be a costly mistake; it is far easier to avoid that it is to fix.
Which type of loan is best?
Where do you even start? Fixed or variable? Interest only? Offset account? There are advantages and disadvantages with every loan product on the market and choosing the right loan will depend largely on your investment strategy. If you’re looking to pay down the loan as quickly as possible then a variable loan will be best. If you’re after a sharp rate and some stability, then something fixed might be best. Speak with your mortgage broker in depth about what you are trying to achieve so they can find the most suitable product.
It’s important to regularly review your loans and your goals. Circumstances and strategies change so a product that was perfect two years ago may now be costing you money. If you plan on accumulating more properties, get your current investments revalued to determine whether you can leverage the equity for the next purchase. Make sure you stay in touch with your trusted advisers and keep them in the loop as you plan your next investment.