Are you thinking about investing or consider yourself a seasoned investor, ready to purchase your fourth investment property? Either way, it’s good to do a ‘reality check’ and ask yourself these all-important questions before jumping in. Once the answers are clear you can then move ahead to achieving your goals.
Why am I investing in property?
What are you trying to achieve ? are you looking to build equity for capital growth or aiming to build a secure income stream to retire on? Knowing what your end goal is will help you get started and could make working towards your goal easier.
Should I buy my first home before investing in property?
The surprising answer is not necessarily. With housing affordability a growing concern, you may not be able to afford to buy in the area you want to live in but you could afford to rent in the same area.
For example, if you enjoy the lifestyle of living in Sydney’s inner city and want to live there to be close to work, the mortgage repayments could be $5,000 per month, yet to rent a similar property in the same area may be $3,000 per month. You could choose to rent in the area and potentially have a spare $2,000 per month to invest in property.
What property should I invest in?
This will entirely depend on your circumstances, investment strategy and disposable income. You could start with understanding your income, assets and expenses and how much money you can commit every month in repayments. That can help determine what kind of property you could afford.
Look for properties that appeal to families and a wider audience. Units can be easier to maintain than houses and also less expensive to buy. Areas, where rents are high compared to the property value and zoning changes that could affect the future value of the property are some things to be researched when looking for your property.
Buying the wrong property for your circumstances can be a costly mistake, so it’s easier to avoid than to fix.
What kind of loan will work best for me?
Is it better to pay principal and interest or interest only? The advantage of taking an interest-only loan is that the repayments will be lower, potentially making it more affordable, The extra cash could then be used for other goals.
However, some lenders charge a higher rate on interest-only loans while other lenders may limit the number of years a loan can be interest-only. When that time is up you could try extending it or you will have to revert to principal and interest, which could mean quite a big jump in repayments.
With interest rates currently so low it may make sense to pay off some of the home loan principal now, so if rates rise in the future you would be paying those high rates on a reduced loan size, says Canstar.
The final decision will vary depending on your personal circumstances.
Discussing the following questions with an experienced lending specialist at Mortgage House could help you achieve your property goals and avoid costly mistakes.
Mortgage House
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage. The cost of your mortgage can drastically affect your financial planning, so it pays to speak to the experts about it.
