What Should I Consider When Buying a Second Property?

If you’ve been a homeowner for a while and you’ve built up some wealth, chances are you’re thinking about investing in property. Maybe you want to begin a portfolio and have an income of rental yields, or perhaps it’s part of your nest egg plan.

Whatever the reason, it isn’t a decision you make lightly and knowing how to buy your second home before you are in a position to do so is vital to your success. We’ve got something for you to think about before you commit to buying a second property.

Why are you buying a second property?

It is assumed that people buy a second house for investment reasons, but this is not always the case.

Holiday house

You may buy a second place as a holiday home, somewhere along the coast, or in a beautiful part of Australia such as the ranges. You can earn some income by renting this property seasonally, or just have it handy for a quick getaway without the need to find accommodation.

For someone else

You may purchase a second home for a family member, such as one of your children, or even for your elderly parents, so you’re closer to them in their later years.

To retire

Perhaps you have plans of retiring in a particular part of the country, so you begin the process early by purchasing a property where you want to live later in life. You can earn some rental income in the meantime until you’re ready for the relaxed retired lifestyle.

Investment property

Arguably the main reason to buy a second property is for investment reasons. Property is still one of the safest places to invest money. If you’re just starting to build your portfolio or think having another property is a safety net, buying an investment property is a big choice to make.

Is a second property a good investment?

As with any investment, nothing is guaranteed. If you buy at a reasonable price and the property market trends upwards, then yes, it’s a good investment. If you are able to have tenants in there for most of the time, earning you an income, then yes, it is a good investment.

If the property market turns, or interest rates go up, or if it sits vacant while you try to find tenants, then it might not be a good investment.

Another thing to consider- if you overextend yourself with a second property as an investment, the money stress could impact your quality of life. We would not consider this a good investment.

How much deposit is required for a second property?

Much like purchasing your first property, you will need a 10% deposit for your second. To avoid expensive Lenders Mortgage Insurance, you’ll need 20% deposit

If you’ve owned your own home for a while, then you can leverage the equity in your home for the deposit, saving you all that time saving to get the 20%.

Can I get a loan for the second home?

You most certainly can get a loan for a second property. Much like buying your first, we recommend arranging finance before looking and committing to buying a home. It is a good bargaining chip for your conditions to say you’re already approved for a loan.

How can I save money for a second home

As with all big purchases, you will need to save money. Here are 3 tips to help you save for your second property.

  1. Have an offset account – This is an everyday account you can use like a regular bank account. However, the balance which is in this account is offset against the principal of your loan. If you borrowed $200 000 and had $50 000 in an offset account, you would only be charged interest on an amount of $150 000.This helps you bring the principal of the loan down quicker, giving you higher equity in your home, which in turn helps you save for your second property.
  2. Keep a budget – Know where every dollar is going so you know how you can save them. Every dollar saved helps you.There are plenty of smartphone apps and online budget software packages to help you. The key is to be honest with yourself. It’s okay to sneak in a latte if you can afford it, if you know it appears on your budget.
  3. Find ways to save – This might sound obvious, but if you have a big saving goal, then you need to be thinking about saving.
  • Instead of going on holiday, have a staycation.
  • Use a library instead of buying books.
  • How many streaming services do you have?
  • Is public transport to work cheaper than driving?
  • Do you have the option of working from home, saving on transport costs?
  • Can you wear another jumper rather than use gas heating?

Small measures soon start to add up to significant savings.

Are there any extra costs?

If you’re purchasing a second property, then there will be the expenses of that property. Insurance, rates and maintenance to begin with. If it is a part of a body corporate, then there will be fees for that too.

You need to factor these after-sale costs into your budget else you could find yourself in quite the financial bind.

Source: https://www.realestateview.com.au/advice/buying/what-to-consider-when-buying-a-second-property/?utm_source=facebook&utm_medium=social&utm_campaign=facebook&fbclid=IwAR1fy3u114MaHn70ExoH969Suk-2e8OjZqU67R3BMCMJ5_nzlTXiUPJNxHQ

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