Going from home owner to Property Investor
August 19th, 2015 • No comments
If you are currently a home owner getting ready to take the leap toward your first investment property, there a number of important differences you will face when stepping from home buyer to property investor. Property investing can be a completely different ballgame with different rules, lending and requirements.
Here are some important factors to consider when jumping from your PPOR into an investment property for the first time.
1) The right loan
Property investment loans come in many different shapes, sizes and options, such as interest-only repayments, principal and interest etc.
Interest only are generally the most popular with investment lending. This means your repayments are for the interest portion of your loan only, and not the principal or the purchase price. This allows you to maximise your cash flow and are tax deductible, whilst not paying down the original debt.
2) Your deposit
Again your deposit requirements vary greatly depending on location, risk rating, rental return and valuers comments. With their recent changes to investment lending nationwide you will generally need a 10% deposit in most locations.
This amount will vary depending on the cost of the property and the terms of the loan. If you don’t have enough for a cash deposit, you may consider using equity from your home as security for your loan.
3) Using Equity
if you’ve owned your home for 5+years, there’s a chance you have potential usable equity, and this is a valuable resource when it comes to property investment.
As an investor you can generally access up to 80% of your home equity (without the need to take out Lender Mortgage Insurance).
Alternatively some lenders will lend up to 95% of the property value less the existing mortgage, where LMI would be paid on the amount borrowed over 80%.
4) Other Options
funding from family members has become a popular option, such as a parent or a sibling who guarantees your loan. They must have enough cash or equity to cover the minimum deposit requirements of the purchase price of the investment property. Having assistance can make it easier and quicker for you to get started in property investment.
There are many other things to consider when deciding if buying a second property is right for you such as cash flow, estimate rental income and allowing for a safety buffer, which I will cover in my next blog.
If you are able to answer what deposit you need to buy an investment property and know how you will fund it, you can start exploring the different loan and repayment options.
We have registered brokers available to have your questions answered with a free no obligation financial health check. Click here to find out more.
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