Most Australians buy their own home, but only 15.5% of taxpayers have an investment property, according to the most recent ATO statistics.
So what can you do if you’ve bought an owner-occupied property and want to buy an investment property as well?
We explore some helpful ways of how to become a property investor.
Use the equity in your home to fund your deposit
Home equity can be a valuable resource in securing your first investment property. Equity is the difference between the current value of your home and how much you owe on it.
Many lenders allow you to borrow against the equity in your home. Typically, they’ll allow you to borrow the difference between 80% of the value of your home and your outstanding debt. So if your home was valued at $530,000 and your outstanding debt was $180,000, you’d be able to borrow $244,000:
- 80% of $530,000 = $424,000
- Outstanding debt = $180,000
- Difference = $244,000
Put extra money towards a deposit
One of the biggest challenges for property buyers is securing a deposit. If you’ve had an increase in income or freed up additional disposal income, you can use it to increase your monthly savings and accumulate a deposit faster. If you want to know how to become a property investor then you will need to look at creative ways to get together that deposit.
Lenders typically ask for a 20% deposit. That can be steep, depending on the price range of properties you’re shopping for. It is possible to get a home loan with a lower deposit if you are prepared to pay lender’s mortgage insurance (LMI) and/or a higher interest rate.
Improve your credit score so lenders want to do business with you
When you’re applying for finance to buy a second property, one of the first things lenders are going to look at is your credit score. They’ll want to know if you’re meeting your current home loan payments, along with any other debt you have. The higher your credit score, the better your chances of being approved for a second loan. Your credit score will be very important if you want to know how to become a property investor.
Enlist the help of a buyer’s agent
Buying an investment property is different to buying an owner-occupied property. You’ll have a different set of factors to consider. A buyer’s agent can help you buy a property that matches your investment goals and your budget.
Additionally, if you live in an expensive capital city, a buyer’s agent may be able to find a great investment property in a cheaper interstate market. Buyers agents will often work with lots of other property investors so it’s important to make sure you get one that knows investments!
Don’t be afraid to buy during a downturn
Some new investors are hesitant to buy when the housing market is in a downturn. Remember, property investing is a long game with highs and lows along the way.
If you buy a quality property in a quality area, the downturn is likely to end at some point and the property is likely to rise in value (although not guaranteed). Look for properties with owner-occupier appeal, because they tend to enjoy better long-term capital growth.
Partner with a family member
Pooling your resources with a family member can make it much easier to access investment property. It can also give you more buying power if you want to invest in a more upmarket area.
You can structure this arrangement either as joint tenants or tenants in common. With joint tenancy, both parties (usually spouses) have equal ownership. Should one member die, the surviving member receives property rights.
With tenants in common, two or more people can each have a different share value in the property. Each member can select a beneficiary to pass their share on to in the event of their death.
If this is your first foray into property investing, chances are you will need a finance partner to help you fund it. Chat to us at Well Money. We can help with a low interest rate loan, tailored specifically for property investors. Call us on 1300 899 724.