Investing in property? Organise your finances first

Investing in property? Organise your finances first

Property investing is an effective strategy if you want to build your wealth and create a secure financial future. However, you need to do your research, choose the right property, and make sure your finances are in order before you borrow to invest. 

Read on for some tips to help you prepare to borrow for an investment property. 

Think about your deposit

When you purchase a home to live in, you generally need to have a cash deposit of around 10-20%. 

For an investment property, the criteria tends to be a little different. If you already own one home, the equity you have can be leveraged instead of cash. 

The general formula is that you can use 80% of your home’s value, minus the amount you owe for an investment property deposit. For example, say your home is valued at $400,000 and you have a home loan of $220,000. Your lender will calculate 80% of the value of the property – 80% of $400,000 is $320,000. This means your usable equity would be calculated as $320,000 (80% property value) minus $220,000 (loan size) = $100,000. You may be able to use this amount to borrow and invest.

If you also have some cash set aside, you could decide to use this in conjunction with your equity. 

Speak to a broker

Borrowing to buy an investment property can be a little confusing as there are so many loan options out there. 

It really helps to have a mortgage broker on your side who can explain what you need to do and walk you through the process. They will figure out how much you can afford to borrow based on things like your income, your budget and the value of your home. 

A broker will show you how to prepare your loan application so you have the best chance of success. 

Research the market

Once you have an idea of how much you can spend, you need to decide what your strategy for investing is, what kind of property you will buy and where it will be located. 

Generally, people who purchase investment properties lease them to tenants who contribute to the cost of repayments. If this is your plan, you need to ensure you purchase a property that is always in demand from tenants. 

Do your research and look into areas which have plenty of jobs and positive population growth forecasts. Many regional areas make sense because of people relocating so they can work remotely and have a more flexible lifestyle. 

Organise your finances

When you make any kind of property purchase, your lender will need confirmation of your credit and regular spending. 

As you prepare to borrow, minimise the amount of money you owe as much as possible or find a way to consolidate your debts so you have them under control. You also need to be able to prove you have the money to meet your repayment obligations. The preparation period is the best time to sort out your budget so it reflects the additional expense of having a larger mortgage. 

Talk your agent

Once you have decided where you want to buy, you need the help of an experienced local agent. If you’re investing in Mount Gambier, talk to us! We can tell you what you can expect to get for your money and which areas are best to invest in. We can help you to find a property that is already tenanted so you don’t have to look for tenants, or we can find tenants and handle the property for you once the sale has gone through. 

Now is a great time to invest in Mount Gambier

Our town experienced some of the best growth in regional SA in 2021 and we are looking forward to more positive results over the coming years. If you’d like to find out more about purchasing an investment property, contact Complete Real Estate today. 

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