Making the decision to purchase a second investment property is an exciting venture, but it can also be quite daunting. In this article, we’ve put together a list of 5 best tips for buying a second property to invest in.
1) Use your equity
If you don’t want to pay the deposit for your second property using cash, you can always use the equity from your first property. Equity is the total value of your property minus what you owe on the property, such as your mortgage. Equity can be increased in two different ways, you can either build your equity by meeting your regular interest and principal repayments or wait for your home to increase in value. Lenders will usually let you borrow a maximum of 80% of the value of your home in order to buy your second property.
2) Find properties below market value
This will take a significant amount of research but it could lead to long-term benefits. There are several properties on the market that can be sold below their value, but you just need to look out for them. Some vendors will be looking to sell as quickly as possible, so if you contact them early on, you may be able to negotiate for a lower price. Get in touch with your local real estate agents and they might be able to let you know when up and coming properties appear on the market. If you purchase properties that are under market value, you won’t need to depend on the market increasing in value in order to receive a profit.
3) Take advantage of tax concessions
If you’re considering purchasing a second property, there are a number of tax breaks that you can take advantage of to reduce the cost. These include rental expenses, property taxes and mortgage interest deductions. If you itemise your deductions, the interest on your mortgage will probably be tax deductible up to a certain limit, but this will vary depending on whether your second property is a rental property or a personal residence.
4) Find the right home loan for you
Finding an affordable home loan that has all of the features you require can make a huge amount of difference and it’s actually quite simple to do. Use comparison websites to find lists of lenders to look into that offer home loans that reflect your personal investment goals. For example, if cash flow is tight, a loan that is interest-only will have the lowest repayments. Interest and principal repayments will be slightly higher but they will help you to build equity by paying them on time. The strategy you choose will vary depending on your situation and goals so it’s a good idea to contact a financial advisor.
5) Contribute your own savings
If you have some savings to contribute towards your deposit, this could put you in good standing with your bank and will make it more likely that you will be approved by various lenders. There are a number of low deposit options in which you can borrow as much as 90-95% of the value of your property on a loan for your second home, but be weary, you may need to pay LMI (Lenders Mortgage Insurance).
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