So you’re thinking about taking the leap and buying your second home - congratulations!
Whether you’re moving up the property ladder, buying a second property as an investment or whatever the case may be, you should plan ahead and think about a few things before buying more real estate.
“Isn’t all debt bad?” you may be thinking. Not necessarily. In fact, some kinds of debt are ‘good’ - like a home loan or student debt - because both of these have been used to purchase something which will either grow in value or produce income.
On the flipside, ‘bad debt’ is anything that’s used to fund your lifestyle or debt that’s been spent on things that have no value, or that will decrease in value over time. Credit cards and payday loans are perfect examples of ‘bad debt’.
So now that you’ve had a crash course in the difference between good and bad debts, you should start thinking about making a plan to pay off any bad debts you may have. If you have credit card debt, or even buy now, pay later debt, it can impact your ability to take out a home loan.
If 2020 has taught us anything, it’s that having a stash of cash set aside for an emergency is crucial. In addition to saving up a deposit, it’s important to make sure you have enough money to cover all the hidden costs that come with buying a home, like legal and conveyancing fees, stamp duty, building and pest inspections, council rates, and so on.
Aim to have between three and six month’s worth of living expenses saved up in an emergency fund to cover you for any unexpected costs that may crop up - as a homeowner there are bound to be many of those.
Don’t forget that you now have two mortgage repayments to make instead of one, so having a backup plan in the form of emergency savings to pay for unexpected costs is important.
While you can technically purchase a property with as little as a 5% deposit, you may have to pay a far higher interest rate (and Lenders Mortgage Insurance) than if you’d just saved a 20% deposit to begin with.
You may be able to access the equity in your current property to use as a deposit for your second property. To do this, you can refinance your mortgage (if you’re not already a loans.com.au customer, we’ve got some super low rates!) or tap into any extra payments you’ve made on your home loan through your redraw facility, if you have one.
If your second property is to be an investment, you should carefully consider the property before you buy because not all properties make for a good investment. So what does? Firstly, location will always be a major driving force for people when deciding to rent so make sure the property is close to lifestyle amenities, schools, public transport and so on.
Other important factors to consider is the potential for capital growth and rental yield. A good investment property needs to produce a regular income stream in the form of rent but it also needs to grow in value over the long-term and that’s where capital growth comes in. Simply put, capital growth refers to how the property appreciates in value over time and because this is one of the key ways investors build wealth, it’s important in an investment property.
We could bang on for days about what to look for in an investment property or you could just read our article on what makes an ‘investment grade’ property.
If you’re buying your second property and are still paying off your current home loan, did you know you can bundle the two loans together? If you currently have an owner occupied loan with us and your second property purchase is an investment, you can bundle your loans together by taking out our Smart Booster Investor Bundle.
Maximise your investment and start saving thousands on both your investment property and your own home. Talk to a loans.com.au lending specialist today to get started.
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