What You Need to Know When Buying a Second Property

Mortgage Broker Richmond

If you’ve already bought your first home, congratulations! Planning to buy a second house as a property investment could be the next step in building wealth for your future. Perhaps you might want to make sure your parents have a place to live as they age or you may be considering becoming an investor.

Whether you’re looking to expand your property investment portfolio, buy a vacation home or help a family member, there are several factors to consider before taking the next step.

Buying additional real estate, whatever the situation may be, carries some risk. But don’t worry; we’ll go through everything you need to know before buying a second property.

Points to consider before buying a second property:

  1. Why are you purchasing a second property?

When purchasing a second property, you will need to think about your approach a little more carefully than the first time around. Do you intend to invest for the long or short term? Are you planning to renovate the property and rent it, make a monthly profit from the rent or buy and hold for a decade or more till the value rises? This will impact the type of property you purchase.

If you’re buying as an investment property, decisions like location, capital gain potential and rental yield will have a different impact on you than if you’re buying a home to live in.

  1. How much is the deposit for a second home?

When purchasing a second house, the deposit is the same as it was when purchasing your first. A 10% deposit is usually required by most lenders. A 20% deposit is required to avoid costly Lenders Mortgage Insurance (LMI). The good news is, if you’ve owned your house for a while, you might not need to save for a deposit for years. Instead, you might be able to use your home’s equity as a deposit.

So, what exactly is home equity? To figure out how much home equity you have, first determine the worth of your property, then subtract the amount owed on your mortgage, what remains is your equity.

  1. Is it possible for you to acquire a loan?

It’s a good idea to be sure you can receive a loan to finance your investment property before you start exploring. You’re wasting your time if you don’t. At the very least, enter your financial information into a lender’s home loan calculator to see how much you might be able to borrow in theory. You can do research or ask the expert property investors or mortgage brokers. You might be surprised to learn that it’s more or less than you expected.

  1. What are the extra expenses of owning a property?

Many people make estimates based on what their expected mortgage repayments will be at current interest rates vs. the estimated rental income when looking at investment homes. As owning a home comes with a lot of hidden expenses, this understates the actual cost. Council rates, insurance, maintenance, strata levies and property management costs are among the additional expenses.

  1. Where should you buy an investment property?

This is a crucial question to consider. The first criterion is to choose a neighborhood which has good infrastructure, such as public transportation and businesses. The second point to remember is to stay away from places that are heavily reliant on a single industry. Recently, home prices in several once-booming mining communities fell significantly lower than those of a decade ago. Investing in places with broad, multidimensional economies is essential to avoid such losses.

  1. Is it better to buy a home or an apartment?

Many new buyers have heard that houses are a better investment than apartments since the land component of the property appreciates over time while the building depreciates. While it is true that land appreciates in value, location and scarcity are more important, thus more land in a less expensive place isn’t always better. One obvious advantage of an apartment is that it is typically less expensive than a single-family home in the same suburb, so you are likely to be able to pay for it.

  1. What is the potential for rental income?

If the property is currently rented, finding out how much it is rented for is simple. If you’re thinking about buying an owner-occupied home and renting it out, ask a local real estate agent (not the one selling the house) how much they think it would rent for.

  1. What is your backup plan?

What happens if your job is lost? Will you be able to pay off two mortgages if your financial circumstances change? Try to calculate it in mortgage calculator. The purpose of these questions is to emphasise the significance of having a backup plan. You must be able to cover your repayments if something goes wrong. You may, for example, open a new account and deposit six months’ worth of repayments there. This will provide you with some buffer time if your monthly revenue falls short.

Whatever is your purpose for buying a second property, being well-informed will help you have a more pleasant buying experience and a more secure financial future. Answering the above questions will help you make a better decision regarding your property investment.