Investing doesn’t have to be so scary when you’ve got the right people on your side.
If you’re lucky enough to be living in your dream home with a healthy savings account, then it might be time to consider your first (or second, or third) investment property. When your money sits in a savings account, not much changes — but an investment property can help grow those savings and even provide another income stream.
When the question of investment properties came up, we were all like, “Say whaaat, where do we start?” So, we sought out some expert advice from Scott Matthews, an accredited mortgage and finance broker with 20-plus years in the industry AND the new director of Bernie Lewis Home Loans.
Who should look at buying an investment property?
If you’re passionate about real estate and want to find a sustainable way to increase your capital, an investment property could be perfect for you!
Why buy property instead of investing elsewhere?
You’re essentially using debt to increase the size of your investment, which we call gearing. Let’s just say you’ve got $10 to invest in the share market, then you get $10 of shares. But, if you use that same $10 to invest in the property market, you can secure yourself a house worth much more than that with the help of a loan. When the house then goes up in value, it increases the entire value — not just that first $10 that you started with.
What are some of the benefits of an investment property?
Chances are you’ve had to take out a loan from the bank to buy a new investment property, but the good news is that the tenant renting the property will be essentially paying all or the majority of your mortgage for you with their rent. It’s so rare for a property to not have a tenant, as rentals are so in demand.
The other main benefit is that when you sell your home at the peak of the market, you have to buy your next home at the same peak so you’ve got somewhere to live. With an investment property, you can sell at the peak of the market and then just tuck the profits away or wait to buy another investment once the market settles a little.
Why would I buy an investment property when I only get a small amount of rent back each week?
Unless your property is freehold, you’re not in it for the weekly rent payment — although, it’s a nice bonus! You’re in it because you have an entire property going up in value. The longer you hold the investment property, the more the rent will increase, mortgage will reduce, and your equity will increase. One day, that property will be valued at much more, then, you can sell it and make a profit, or you can use the equity to buy even more investment properties. It can become addictive!
Where do I start?
Before you even look at properties, you need to look at the equity of your existing properties, your savings, your income and what you can afford. You want to make sure you’re setting realistic goals.
The next step is to decide what you’re going to buy. A unit is low maintenance, but you have to factor in shared service and strata fees, and it will only increase in value at the same rate as the other units on the block. A house is a bigger investment, but it also has a better chance of increasing in value because you can make improvements.
Your broker can work out how much you can borrow, what property type is best, and ensure that your loans are structured in a way to benefit your tax. At Bernie Lewis, we guide and educate you in how the investment property market works, so you can feel empowered in your investment.