With the motive of attaining financial freedom, many of us invest in properties but halt the process and give up on the first property because of the burden it brings in the form of mortgage and interest rates. However, it does bring fruit in the long run – rental income that can bring ease in many ways. It secures your future, leading you to build wealth that your children and grandchildren can use to improve their lives.
Investor home loans are surging by 35%, and metropolitan cities like Brisbane, Perth, and Adelaide have been growing for the past few years. Investing in another property to expand your portfolio and secure your future is high time.
Sydney is growing too, but not like the three cities mentioned above, and Melbourne’s hike has stagnated since the pandemic. Their majority properties are either owned by investors or first-time home buyers. Because of its low price, the place is ideal for first-timers, but it puts huge pressure on the rental market.
The current crisis and mixed scenarios in different cities make it complicated for a person to decide if they should invest in a second property or double the burden or not.
To navigate this issue, we will give you benefits and discuss the right time to buy a second investment property. Afterwards, we give options to invest in the second property with and without a deposit.
It is okay to have a wish to invest in property, but it is more important to invest strategically, or you will lose your savings and time, both.
How to buy your second investment property?
Before getting into ways to invest and buy a second property, it is important to understand why it is important and how it can benefit you. There are multiple ways to invest, but before going into it, it is important to have a meeting with a buyer’s agent to identify high-potential locations and properties. Their experience will help you understand the science behind loan schemes and how to calculate them. Spending money on a buyer agent is a worthy expense that will save you from loss. It will streamline your investment journey.
Why should you invest in a second investment property?
Investing in another property has numerous advantages, such as:
Wealth building
After getting the first property under your name, we all aim to go beyond and achieve further. Aiming for this goal, you are likely to increase the potential for equity and capital growth, which ultimately builds your wealth faster than you expect.
Open more opportunities
The equity of the first property works as the root for your second investment property. Using it strategically will allow you to acquire more properties.
Diversify your portfolio
Acquiring multiple properties allows you to put the eggs in different baskets, which divides the risk and maximize your growth chance.
Well-maintained lifestyle after retirement
Investing in high-potential properties results in better rental incomes, which eventually ensure a debt-free asset, leading to have modest lifestyle in post-retirement life.
Asset for the next generation
Owning properties improves the generational wealth, eventually leading your kids and their kids to have better facilities and income streams for their betterment. You can either gift them those properties or sell them to support your children in any way.
What is the right time to buy a second investment property?
In case of investment, the right time is when your personal circumstances complement your desires. Therefore, before making a decision, assess your situation in the following categories:
Financial priority
Ask yourself if it is your priority to become financially wealthy and prosperous. If so, take a shot, but ensure to have capital and time for it.
Additional expenses
Assess your situation if you would have lump sum expenses in the coming months, such as school fees, mortgage, hospital expenses or anything else. Identifying such expenses earlier will help you during the decision-making phase.
Another income stream
If you are into side-hustle or have recently received a raise, it means you have some funds for investment activities.
Generational wealth
If you have inherited funds or assets, you can strategically use them to build more wealth for your future security.
How to get money for your second investment property?
Investment always requires extra money. There are many ways to get money for your next investment property. Each way has its merits and demerits; you need to evaluate each before finalizing one.
Equity and refinancing
Buying a second property with equity does not require you to pay a deposit because the money you get from your first property can be used for the second one by refinancing your home loan to release equity.
Refinancing is a complicated process as you have to change your long-term debt strategy and make it shorter ones that can be sorted in a fraction of that long-term duration.
Upfront rental income
Numerous property investment companies offer upfront income, by which you can withdraw $100K on each investment property without dealing with the bank and selling the property.
This amount is a portion of the rent of the tenant that has just returned, which means you can earn rental income from your second investment property and have access to your money as well.
Low-deposit home loans
Low-deposit loans allow you to borrow 80% to 95% of the property value, paving the way to buy a second property. However, this loan has a higher interest rate, which ultimately affects the repayment process.
If you borrow more than 80% of the property value, you will need to pay LMI, which is quite expensive.
When you are going with loans, calculate the total cost because even if the interest rate is low, the cost will add up for 20 to 30 years, which would become huge. Therefore, consult a finance guy or property dealer before signing up for a loan.
Line of credit home loan to avoid a deposit
If you want to avoid a deposit, here is the solution.
A line of credit home loan is similar to a credit card, which is based on your equity amount. Working like a revolving credit, you will get a pre-approved limit, due to which you can get cash without filing a loan application when you need to borrow money. Yet, you are required to pay interest on the borrowed money; therefore, you must be aware of the fact that interest rates on such loans are more than standard mortgages.
What expenses do you need to consider when planning to get a second investment property?
Besides a deposit, other upfront costs come with your decision to invest in another property. Here are a few of them you need to know:
Stamp duty
One-time governmental charges, a stamp duty is the most significant expense in property investment that you cannot avoid. Its cost depends on the location of the property. The charges are usually lower for owner-occupiers than for property investors.
Initial lease costs
It includes the fees you have to pay to the leasing agent and the marketing cost required for the rental listing’s advertisement. You may forget such costs, but it is important to consider them at the time of securing a tenant. You must know the fact that you won’t get rental income during the vacancy period.
Inspection costs
Before getting a property, it is crucial to inspect the place to detect hidden issues. It is important to get an inspection report of the property before investing money in it, otherwise the place will lose its market value later.
Lenders’ mortgage insurance (LMI)
It’s a kind of insurance that you are supposed to pay when you borrow more than 80% of the property value because it will compensate the lenders in case of the event you default. It’s a pricey amount, due to which investors consider it evil.
Legal costs
It is the fees of your conveyancer or solicitor as they review your contracts and streamline the settlement. You are required to pay the legal costs after the settlement.
Investment is another name for expenses. These are a few of the major expenses that you should know before thinking about the second investment.
What other things should you consider before getting a second investment property?
Other than expenses, you need to identify other important factors before picking one property for investment.
Borrowing power
Before filing for a loan, it is important to talk to a mortgage broker and determine what you can borrow and how much, because you do not have a deposit to pay only but also the other payments as well that we discussed above.
Loan types
Banks and companies offer different kinds of loans; you should consider the existing loan and structure payments and repayments strategically to avoid heavy debt.
Rental income
Consult a property dealer or a good buyer agent Australia to identify the growth potential of the property you are thinking of buying, because that’s what determines how much you will earn in rental income.
Capital growth
You need to determine if the property has potential for capital growth because that’s what will help you accumulate wealth faster and get another property without a deposit sooner than expected.
Rental demand
Ensure you buy an attractive property so that you have a minimum vacancy period and generate more rental income than properties that have a longer vacancy period.
Location
The area where your property is located defines its value and growth. Therefore, it is crucial to find a property in a high-growth area so that you can generate better rental income and have running rentals.
Property size
How big your property is plays a crucial role in how much rental income you will earn from it. The bigger place will give you a better income. Yet, you must value what kind of property people are usually looking for so that you can benefit in the long run.
You cannot buy a property in a second or a day. You first need to determine the factors you need to look at. Based on that, you have to navigate and identify the right location and then the right property. You don’t need to focus on price only, but ensure that the long-term investment will bring fruit in the near future via rental income.
Conclusion
Buying a second investment property requires you to either have funds or decent equity from your first property, with the current situation sorted. You should aim to expand your portfolio, secure your future and build wealth. For this, you need to consider the type of loan you are going to file for, the mortgage type, location and property size. Besides, you have to look into ways in which you can accumulate money for investment, such as equity of your first investment property, credit home loans, low deposit home loans and refinancing. Using equity to buy second property is a feasible option, but it is crucial to read its merits and demerits. Before making any decision, it is crucial to consult a buyer agent of any company, such as Investor Partner Group or Wakelin. An expert’s words will streamline your investment journey and keep you from loss, and guarantee you abundance by sharing their experience and imparting knowledge to you on how to buy your second rental property for your betterment. Their experience will pave the way for you to invest in multiple properties and find the right and feasible way to attain financial freedom faster than others in your age group.
FAQs
What is LMI?
LMI or Lender’s mortgage insurance is a kind of insurance fee an investor pays to the lender when they borrow more than 80% of the property value to help lenders avoid loss in case the investor defaults. LMI is quite expensive, due to which many investors consider it evil in property investments.
How does using equity to buy a second property save you from a deposit?
Equity is the property value that increases with time. If your first investment property has accumulated good equity, you can use that amount to pay for a deposit. In this way, you won’t need a cash deposit while your existing property gets secured on the new debt.
How to buy multiple properties when you are a salaried person?
Buying a second property can allow you to follow the drill of investments and expand your portfolio. To be honest, anyone can do it. You need to understand the game of borrowing money that equals your property value and returning it on time, maintaining cash flows and finding the right lender. Although its not that easy, a good buyer agent and property dealer can simplify the investment process and help you retire soon.
