You are established in your home and ready to dabble in some investments, yet you are a little daunted by the responsibility of owning two properties. How do you know when conditions are right for you to purchase a second property?
If you are like most one-property owners, you might visualize a few obstacles preventing you from purchasing a second property. So let’s look at some of these obstacles and see if there is a way around them.
Don’t let market conditions dictate your decision
Many buyers find themselves in limbo waiting until interest rates and housing prices are “just right.” While this is a positive opportunity to continue saving and build equity in your existing property, it can also be counter-productive if the ideal conditions never eventuate. Property investment is about long term capital growth, and you can only start that growth process once you make the purchase.
An alternative to paying off existing property
Property owners can also be inhibited from buying a second property because they are focused on paying off their existing home first. However, if you are looking at your property portfolio from the investment perspective, it is worth calculating your options here, as a second property can considerably increase your overall equity. While paying off your first home first may seem like the more secure option, investing that money into a second property can be more profitable, thereby increasing your financial security.
Your own financial situation
Ultimately, the best time to purchase your next property is when you are financially capable of managing a second mortgage. Ideally, you should have at least a 10% deposit available (plus closing costs), through cash or equity or a combination of both, with additional capital to cover any rise in interest rates, emergency maintenance or loss of income in between tenants.
Talk to your mortgage broker to assess your options, so you know how to make best use of your equity, what sort of loan you can apply for, and how much the repayments should be to fit your budget and achieve your investment goals.
A property with profit potential
Besides capital, the other factor that signals the best time to buy is when you find a property within your budget with high and safe returns. Look for a property with great rental potential for its area, so you can be confident of a regular rental income.
Property investment is never an impulsive decision – it will take intensive research and budget calculation to find the property that covers all your bases. When you find that property and have the capital to cover your investment expenses, then you have narrowed down the right time to purchase your second property.