The ‘investment property’, it sounds like music to the ears of those looking for a property to long-term wealth source. Property investment is an essential asset to help you grow your funds. But to get everything right, you need to first choose the right property that would increase your ROI.
Before you start looking for the right investment property, it is wise to orientate yourself regarding the financing of the investment property. What are your options? For what amount do you expect to be able to obtain financing? If you know where you stand financially before the start, you can take immediate action when you start investing in real estate.
The Ideal Financing
The ideal financing for your property investment takes more than just the purchase value into account. What additional costs are associated with the purchase of an investment property? How high should the minimum rental income be to make your financing interesting? If you have drawn up a good cost and benefits picture in advance, you will know exactly where you stand when the right property presents itself. In the real estate market, it is important that you can act quickly.
You are not about to buy a house for your own use, so a regular mortgage will not be possible. Residential mortgages are only intended for private homes, and in some cases, for holiday homes or family housing. In the case of a regular mortgage, a bank will not permit to rent out the collateral, the home. Special real estate mortgages are available for financing investment properties.
Investing in Real Estate
If you need financing to purchase an investment property, you can take out a real estate mortgage for this. These mortgages can be taken out by both individuals and companies; a real estate mortgage is a business product. When granting a mortgage for an investment property, almost exclusively, the value of property to be purchased is considered. Your own home mortgage and income are usually not tested. Building a real estate portfolio in most cases starts with such a mortgage. You can take out several mortgages; as long as the collateral justifies the purchase and you are in principle in the right place.
Real estate mortgage requirements:
- A licensed appraiser determines the market value in the rented state and the rental value.
- The interest rates of real estate mortgages are higher than those of a regular home mortgage.
- The interest rate depends on the percentage amount of financing and the fixed-rate period.
- Getting more than 80% of the loan amount has become very tough, so you need to have 20% deposit.
- You need to show equity in case of borrowing 90% or more of the mortgage amount.
- A good credit score is really needed in this case.
- Strong employment and income source are also considerable factors.
Do you intend to buy an investment property? An essential characteristic of the investment property is that it generates money. With the return you get from a first investment property, you are able to build up a portfolio of investment properties. The more buildings, the higher the return. We are happy to help you with this.
Find a Prime Location
An agent will confirm this for you. When you buy real estate, location is the topmost thing to consider. But how do you find a top location as an outsider? Three tips for you!
1. Talk To The Neighbors
You may have to step out of your comfort zone but still dare to ring a few doorbells. This way, you discover what kind of people live in that neighborhood. Are they mainly elderly or young starters? Are there enough jobs in the area, or do they have to commute for a long time to their job? Following this, you can estimate whether you will find your desired tenant at this location.
2. Visit a Real Estate Agent
Visit a local real estate agent in Cranbourne or your surrounding suburb. How is business? Are certain neighborhoods on the rise? Not unimportantly: neighborhoods that are less attractive today may boom in a few years and vice versa. So, a professional can help you know the market value.
3. Look at Prices and Vacancy
Look on real estate websites for properties in the area such as realestate.com.au. What is the average asking price? This gives you an idea of the quality of the real estate in the area and of the profile of potential tenants. Also, stroll around the neighborhood. A lot of vacancies is a negative indicator. In some neighborhoods, the supply is greater than the demand. Therefore, try to find out how long it takes before signs with ‘for rent’ are removed. If there is an oversupply, it will inevitably have a bad impact on your ROI.
Return From Rental
In order to achieve a positive return, the income from letting your investment property must be higher than the costs. The rent must at least cover interest and repayment of the financing and costs of management and maintenance. Everything above that is instant profit.
Return on Value Increase of The Investment Property and Repayments on The Financing
If you have financing for your investment property, you repay your real estate mortgage monthly. In addition, the current housing market guarantees an increase in the value of your smart property investment. These two aspects together create equity. When you sell your property, you will receive your investment and the equity paid out, return in the long term.
It is smart to also look at the long-term benefits. That is why our advice is to always look at the direct return and the indirect return.
Need help in buying property for investment? Contact to let me help you in choosing the best one for you.