Tips for Purchasing Your Second and Future Investment Properties
1. Use the equity in your existing property
Make your current property work for you! There’s no need to own your home outright or sell it to access enough equity to purchase an investment property.
Equity is simply the difference between what your property is worth and what you owe. For example, if you have a property valued at $600,000 with a mortgage of $400,000, you have $200,000 worth of equity. You may be able to borrow up to $80,000 against this equity to purchase an investment property. Using this equity and combining it with the added rental income could mean that you can buy another investment property sooner.
2. Mortgage offset account
A mortgage offset account can save interest on your loan. Your mortgage is linked to an account into which your salary and other cash can be deposited and from which you withdraw to pay bills and credit cards when these debts fall due.
For example, if you have a loan of $300,000 and have $10,000 sitting in your offset account, the amount of interest you pay will be calculated on only $290,000 ($300,000 – $10,000). Use these savings for another deposit instead of paying off your current mortgage.
3. Save your annual lump sum payment and windfalls
Use your tax refund or a windfall such as an inheritance or work bonus to help purchase an investment property. You can choose to put this money into your offset account or into a high interest savings account until you are ready to purchase your next property.
4. Save a little extra every month
$150 per week can usually support an additional property providing you have the deposit. Set up a separate high interest savings account and set a target for a deposit. This history of savings will help you to finance another property.
5. If interest rates drop
If you have a variable rate loan and the interest rate drops, save the difference for a deposit towards another property rather than paying off the investment loan.
6. Stay informed
Once you have a mortgage, aside from making the repayments, it’s easy to forget about it altogether. Staying informed about interest rate movements and new products could save you money. Over the lifetime of your loan we advocate exploring other products and home loan features that may better suit your changing needs. We recommend that you review your mortgage requirements and equity with us on a regular basis. It is as simple as having a Home Loan Health Check every year.
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