PERTH & MANDURAH 08 9367 4222

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Investing in property, such as residential real estate usually involves a long-term plan. You need to consider what is required before you make the purchase. To help, we’ve outlined a few things we consider important.  

 1. What can you afford?

This is the first question you need to ask yourself. Reviewing your budget and taking into account the new property expenses over the course of the year will be helpful in understanding how much you can afford to spend.

We like to think about things in two ways:

  1. Current budget – review your actual budget with today’s expenses making sure you take everything into consideration. Understanding the current budget will help you determine the future budget.
  2. Future budget – this budget is around the new property, not only will you take into consideration the home loan repayment, you will include the council rates, water rates, land tax if applicable, strata fees if applicable, repairs and real estate agent fees for management.

When reviewing the future budget, don’t forget to use the rental income you will be earning as this will help to contribute towards the property expenses.

2. Working out your borrowing capacity

Now that you have worked out your budget, you have to work out what borrowing capacity the lender will give you. Remember, when we approach a lender, they are going to use a servicing rate which is typically 3% higher than the actual interest rate you will have. This allows for future rate increases over the life of the loan.

This means your budget may have you thinking you can afford one thing, however when going to a lender, they will have a different budget.

At Launch Finance we do this day in and day out. We can review the two budgets and then help you work out what the lenders will do for you.

3. How to fund an investment property

Remember the phrase – equity mate! Well, this is where we work out how much useable equity you have in your current property. Most lenders will lend up to 90% of the combined property values. However, when borrowing more than 80% of the property value lenders mortgage insurance is payable.

So our first example see’s a home owner with a property value of $550,000. The current home loan for this property is $250,000. If we look at a 90% loan to value ratio this would mean you have $245,000 of useable equity.

Be sure to understand what this means for you personally.

This amount of equity should see you be able to cover the equity the bank requires to allow you to purchase a second home.

If you have savings, then you can use your savings to purchase a property.

Side Note – purchasing an investment property is just like purchasing an owner occupied house. Stamp duty is payable on the purchase price, there are some government fees to register mortgages on a title, you will 99% of the time appoint a settlement agent who will act on your behalf and you will have some local authority fees to pay like council and water rates. At Launch Finance we have this information and will give you the costing’s you require to work out what you will need to allow for.

4. Collate your information and seek pre-approval

Once we have worked together and you understand what you can and can’t do it is time to be purchase ready. Seeking a pre approval in this current market is valuable. It will help you show the real estate agent you are ready to go and hopefully help put your offer in front of others. Remember, pre approval is not essential however it is a helping factor.

We have many clients that are in a good position and wait until they have found a property prior to applying for finance.

To apply for finance, Launch Finance will guide you on all the documents required to help you with the home loan application. Once the documents are collated we will prepare a submission to the bank and work with the lender for an approval.

5. You’re ready to go. Treat your purchase as a business decision and do the research

Now you have got your home loan in order or know what you can do, you can go out looking for a property. Try and speak to real estate agents to understand what is happening in the location you are looking to invest. Think about infrastructure projects, past and proposed, review schools in the area and review current rental incomes received for the value of the home.

The more homework you do now will help you in the long run achieve the best results and help you reach your goals with property.

Speak to one of our brokers today on (08) 9367 4222 or email [email protected] and our award-winning team can help you work towards purchasing your investment property.