Here’s another great article from Domain about the timing of purchasing a second property.
We ask the experts – a financial planner, a lender and a couple of investors – what they think and here’s what they say.
Certified financial planner and member of the Financial Planners Association Chris Yena believes the “right time” to purchase an investment property depends primarily on the position of the investor.
Matthew Ricker, NAB retail general manager for Victoria West and Tasmania, agrees with Yena.
“Interest rates – particularly fixed rates – are at record lows. If you’ve got enough income to make the repayments, this represents one of the most affordable borrowing times we’ve ever seen in Australia. Just make sure you’ve received good advice to enable you to create income-earning assets from the extra debt,” says Ricker.
Melbourne couple Christos and Rosa Ganino took out their first investment property mortgage in 1990, when Rosa’s mother passed away and she and her sister inherited the family home in St Kilda.
“My sister wanted to sell the house, so Christos and I decided to take out a loan to buy her share. Our then twenty-something daughter and her friends moved into the house and we used their rent to help pay off the mortgage. We were coming to the end of our careers so we had more disposable income; the investment was financial planning for retirement,” says Rosa Ganino.
The Ganinos then established enough equity to buy more properties, which they have nearly paid off. However, in the 1990s, the cost of buying a house was much less, relative to the average household income, than it is today.
How is buying your second home different from the first? Photo: Stocksy
Yena says: “Historically investors have benefited from very high [capital] growth rates on properties, which have helped them cover their mortgages when they sell. Going forward, growth rates may not be the same – they could be lower or higher.
“Investors should consider how to secure the debt against their property. Ideally, they can use the equity in their existing home to secure the loans on the investment property and their current home, which alleviates the need for mortgage insurances and additional costs that come with high loan-to-value ratio mortgages.”
He says the structure of the loan is also important – making a loan interest-only and deductible may be the best and most affordable strategy.
Melbourne surgeon Rani Malhotra bought her first investment property six years ago. Since then she has invested in three more properties, each with a separate mortgage. She says the principal consideration is to ensure you can meet the repayments.
“Consider how much the mortgage repayments will be each month, what other foreseen and unforeseen costs might arise, the costs of owning and maintaining an investment property such as capital works and land tax, and the likely rental income you will receive,” she says.
Malhotra says it’s critical to find a property with the highest and safest returns. “Ask yourself whether your money could be put to better use,” she says.
“Selecting a property can be speculative and comes down to a range of factors, such as size, location, quality, age, and how much development is likely to happen in the area,” she says.
If you’re planning on renting out the property, it’s important to maintain it well and find the right tenants.
“Personally I want to keep my tenants happy so I gladly pay for their repairs and even reduce their rent from time to time,” says Malhotra.
Ultimately the decision to invest in a second property will depend on your own circumstances and you may wish to obtain financial advice to determine whether it is right for you.
Seek further financial advice before buying your second property.