31 Jul How to buy a second property
We have helped many clients with this scenario and this is what we tell them:
1. Choose a strategy
There are various ways to approach property investment so it is important to decide which one works for you. First ask yourself what you are trying to achieve: long term financial security? A little extra cash flow? Multi-million dollar portfolio?
Then decide how best to go about it: do you want to renovate and then sell for quick profit or would you prefer to buy and hold the property to achieve capital gain?
Going ahead without an investment strategy not only leads to confusion during the property search, but also opens you up to all kinds of unwanted risks like buying the wrong kind of property, paying too much or reduced investment return.
2. Assess your finances
Have a conversation with your mortgage broker. We’ll let you know what competitive loans are out there, what you can borrow, and which lenders are likely to maximise your loan capacity. Come to us before you even begin looking at properties because that way we can work together to put your investment strategy into action.
For some, the best funding option might be to unlock the equity of an existing property and combine this with savings. For others, it might involve debt consolidation and savings or even investing within a self-managed super fund.
The bottom line is that if you have a sound income then you’re in good shape to buy more than one property because each property you purchase adds income and equity, which aids further loan serviceability.
3. Research areas to invest
Choosing well means everything when it comes to making money from property. Too many investors make the mistake of buying a property based on an area they might know, rather than researching the market. Once you have decided on a definite strategy and sorted out your finances, you can compile a list of criteria that will help narrow down your property search.
4. Make debt work for you
Not all debt is bad. The best debts are investment loans used to buy assets like property – this kind of ‘good’ debt allows you to build a larger portfolio sooner, potentially earning more income and capital gains, paying off your borrowings from your enhanced returns.
Debts to avoid or to pay down quickly include car loans and credit cards — borrowings used purely to fund consumption or buy depreciating assets.