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15 things to consider when buying your second property

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A well-chosen property investment is a proven way to increase your wealth over time so it is no surprise that many Australians have a passion for investing in bricks-and-mortar.

Buying a second home is no joke. Some buyers think that because they’ve already bought a home, getting a second property would be a walk in the park. But like with any investment, you need to research and prepare accordingly. 

If you’re determined to buy a second property for investment, make sure you’re ready. Here are the 15 things you need to consider when buying a second home: 

What should you do before buying a second home? 

First, you need to make sure buying a second property is the right move. Take into account the following before you make your purchase: 

#1: Figure out if a second home is a worthwhile investment 

Real estate is a popular investment choice, however, it’s not for everyone. Whether or not it’s a good investment depends on your specific circumstances.This is especially tricky if you’re still paying off your first property. 

Understand your financial situation to know if buying a second home is feasible. It might sound like a good idea on paper, but reality may be completely different. You don’t want to purchase a second property in hopes of earning a profit only to be burdened with more debt.

#2: Know your goals and motivations for a second property 

Think about what you want out of your second home. Ask yourself how a second home can help you achieve your financial, investment, or retirement goals.  

Are you investing for the long term or the short term? What additional income or profit do you expect from the second home? Are you planning on using the second home for personal use? Your answer to these questions will help determine the type of property you buy. 

#3: Understand the costs of buying a second home 

A property purchase is more than just paying off the mortgage. You also need to include council rates, insurance, maintenance, strata levy, stamp duty, and property management fees. Before buying a second home, think about the total cost of owning and maintaining a second property. 

How do you choose the right second home for investment? 

As you start shopping for a second property, keep these important tips in mind: 

#4: Think about your investment strategy 

To ensure the success of your investment, you need to find the best property investment strategy. Each investment plan has advantages and disadvantages. Are you looking to renovate the property and flip it, do you want to make a running profit from the rent, or do you plan to buy and hold for a decade or more until values rise? List down your goals and utilise a strategy that helps you achieve them. 

#5: Research different locations 

Location is essential when it comes to buying investment properties. Research potential suburbs by looking into local market trends. See what the key demographic is in the area and figure out what type of investment property would work well there. For example, a suburb near universities would have a steady stream of student residents. Meanwhile, more residential districts may attract those with families and older professionals.

If you want an insight into a suburb, get a free suburb report from loans.com.au. A suburb report contains important information about the area including market comparison, property mapping, median sale prices, sale history, and more.  

#6: Look at future developments in the area 

Don’t forget to look at future plans for the suburb. Consider any potential improvements in the area. Some major works can be positive like improved public transport or shopping, but some can detract from the value of properties in a suburb such as a garbage tip or major entertainment venue. 

Look at approved development applications to see if the area is about to be flooded with new rental options that will compete with yours. By contrast, scarcity will lead to higher prices. 

#7: Choosing the right type of property 

What type of property should you buy? A common belief among investors is that single-family homes are best because even as the building depreciates, the land component will increase in value over time. While that’s true to some extent, location and scarcity play a bigger role in value appreciation. More land in a cheaper area isn’t necessarily better. 

#8: Get a property report 

Property prices vary depending on where it is located. Two similar properties could have vastly different prices just because they’re located in different suburbs. For an estimate of a property’s value, it’s best to get a property report. A property report will give you a good idea of the going rate for a certain property and see market comparisons. 

#9: Understand value-add potential 

When house hunting for a second home, keep in mind the value-add potential. Assess the property and work out if there is any scope for you to add a bedroom or build a minor dwelling that could increase your potential profits. This can help you maximise your investment. 

How will you finance your second property purchase? 

A vital part of the second home-buying process is finding the best home loan. Here’s what you need to consider: 

#10: Know your borrowing power 

Understanding how much you can borrow will help you set a realistic budget for your second home. Use a borrowing power calculator for a quick estimate. This will give you a better idea of the type of property you can afford. The results of the calculator are based on your financial circumstances. Simply input your income, expenses, and other needed information. 

#11: Calculate how much deposit you can put down 

The deposit required when buying your second property is the same as that required for your first home. Most lenders require at least a 10% deposit. To avoid costly Lenders Mortgage Insurance (LMI) you will need a 20% deposit.  

The good news is that if you have owned your home for a while, you may not have to go through years of scrimping and saving to get the deposit. Instead, you may be able to leverage your equity in your home as a deposit.

#12: Figure out what kind of second home loan is right for you 

As you buy your second home, you’ll find various loans to choose from. You can find variable or fixed interest rate loans and interest-only or principal-and-interest repayments. There are also loans with various loan features and terms.  

What you need to do is consider what type of loan and loan features are best for your financial situation. Use a home loan calculator to see an estimate of your repayments and the total cost of your loan. 

#13: Talk to a lending specialist 

Searching for the ideal loan with low rates and favourable loan features can be difficult. It’s even more stressful when you’re doing everything yourself. If you want help finding the ideal loan, speak with the friendly lending specialists at loans.com.au. Tell us about your home loan needs and we can help you find the perfect low-rate mortgage from our range of loans.  

How will you manage your investment property? 

Last but not least, you need to think about what you’re going to do with your second home once you’ve bought it.  

#14 Hiring a property manager 

If you plan on renting out your second property, you need to decide who will manage it. You can manage the property yourself to save on costs. However, you need to understand the full scope of responsibility being a property manager entails. On the other hand, hiring a property manager may cost you around 7% to 10% of your weekly rental income plus GST but you’ll save a ton of time and effort. 

#15: Develop a sale plan for your second home 

For those who plan on selling their second home, it’s a good idea to create a sale plan as early as possible. Work with real estate professionals and discuss the best way to put your second home on the market. 

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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