August 10, 2017 by Vanvan He
It isn’t surprising to see that investors accounted for almost one in every three home loans written in November, according to Mortgage Choice’s new home loan approval data.
Now is a great time for mum and dad property investors to make the most of the lucrative market conditions by capitalising on the low interest rate environment and surging property prices.
Property investment can be a great way to future-proof your wealth. And if done well, it can provide you with an excellent source of income heading into retirement.
If you are considering investing in property, it is important to keep in mind that purchasing an investment property is a little different to buying an owner occupied property. There are a range of things to consider, such as the capital growth prospects, whether or not there is a strong demand for rental properties in the area and how you plan to gear the property. You should also take into account the level of maintenance the property will require and as a result, whether you are willing to take care of that aspect.
As a potential property investor, you also need to have a good idea of how you will finance the investment. The recent surge in property values means that you may have a significant amount of equity in your current home that you could tap into in order to purchase an investment property.
It’s worthwhile noting that the amount of equity a mortgage holder can access for investment purposes is subject to lenders’ serviceability criteria as well as the amount of available equity.
So, if you are intending to borrow more than 80% of a property’s total value (ie. that of your home plus the investment property), you will probably be required to pay lenders mortgage insurance, which can be quite costly.
Of course, accessing equity does require a certain amount of risk. As such, be sure to take the time to establish whether you can comfortably afford the higher loan repayments.
Once you have settled on an effective investment strategy, it is extremely important to allocate time to pick a suitable loan. When doing so, think carefully about interest only vs. principal and interest loan options. While interest only loans will not reduce the loan amount, they will result in lower monthly repayments and allow you to make greater contributions to your principal place of residence, allowing the investment property to grow in value through capital gains.
As with all investment strategies, a long-term approach should be taken when purchasing an investment property. While property prices are currently booming, the fact is property should always offer a good return. As such, depending on market conditions and personal circumstances, mum and dad investors should look to hold onto their property for 7-10 years.
