If you’re considering purchasing an investment property, it’s understandable to feel eager to start browsing properties immediately. However, before you dive into the housing market, you must have a firm grasp of your financial situation.
While it may not be the most exciting aspect of the investment process, understanding your finances is essential. Your income and borrowing power will significantly determine the types of properties you can afford to purchase.
To help, we’ve put together this simple article that lays out the primary considerations regarding your finances and purchasing an investment property.
Understanding your current financial situation
To gain a clear understanding of your finances, there are two main factors you need to consider: deposit capacity and disposable income:
- Deposit capacity:This is the amount of money you can afford to put down as a deposit on a property. The larger your deposit, the more options you will have. A higher deposit will also increase your chances of securing a better interest rate on your mortgage, potentially saving you thousands of dollars in interest over the life of your loan.
- Disposable income: Is any money left over after paying monthly bills and expenses. You can use this money to make mortgage payments and cover any other costs related to owning an investment property.
It’s essential to be realistic when calculating your disposable income, taking into account any unexpected expenses or changes in your financial situation that may arise.
By assessing your finances thoroughly, you can make informed decisions when selecting an investment property. With a solid understanding of these two factors, you can ensure that you only look at properties within your budget, setting yourself up for long-term financial success.
Your deposit options
In most cases, you’ll need to have a deposit of at least 20% of the property’s purchase price to secure a mortgage. If you’ve been diligently saving your money, you may have enough cash for this. Alternatively, if you already own a home that has increased in value, you may be able to tap into the equity to put towards your investment property deposit.
If you don’t have a full 20% deposit, you may still be able to purchase an investment property by taking out Lender’s Mortgage Insurance (LMI). This insurance policy protects the bank if you cannot repay your mortgage. However, depending on your lender and the deposit amount, you may be required to pay a one-off premium for LMI or have a fee added to your loan amount.
It’s worth noting that while LMI can help you get into the property market sooner, it does come with some drawbacks. The cost of LMI can be quite high, and it’s an additional expense on top of your mortgage repayments. Additionally, because LMI is designed to protect the bank and not you as the borrower, it doesn’t offer any additional financial security for you.
The holding costs of an investment property
It’s important to remember that the rental income you receive may not cover all of the holding costs. The amount of rental income you’ll receive will depend on a variety of factors, including the type of property you own and current market conditions.
The holding costs of an investment property can include:
- Mortgage repayments
- Property management fees
- Council rates
- Strata fees
- Property insurance
- Maintenance expenses
- And more
It’s also important to consider how various factors, such as rent reductions, vacancy periods, or interest rate increases, could impact your disposable income and ability to meet the holding costs. For example, if you experience a vacancy where you’re not receiving rental income, will you still be able to cover expenses?
As a property investor, it’s essential to be realistic and conservative when assessing your disposable income and ability to meet holding costs. This will help ensure that you’re not overextending yourself financially and that you’re able to weather any unexpected expenses or changes in market conditions that may arise.
How you can benefit from an investment guide & mentor
Having a well thought out investment strategy is the key to success in the world of property investing. At OpenCorp, we believe that deciding on your destination before you begin and working out the smartest way to get there is crucial to save time, reduce risk, avoid pitfalls, and ultimately accelerate you towards your investment goals.
We understand that there are always risks associated with property investing. However, with a smart investment strategy, you can build your wealth over time safely and securely while minimising those risks. At OpenCorp, we have developed a proven and simple process to investing, helping thousands of client clients achieve their financial goals through steady and reliable growth.
Our experienced team understands the property market, allowing us to identify investment opportunities with strong long-term growth potential. We are committed to building wealth for our clients in a way that is sustainable, transparent and, most importantly, within your budget so as not to impact your lifestyle.
So whether you’re a first-time investor or a seasoned pro, our expert property investment consultants can provide the guidance and support you need to succeed.
Speak with the experts at OpenCorp today
Did you know that we offer a free, no-obligation Discovery session where our consultants will get to know you :
- Understand your financial goals
- Where are you right now financially, and where you want to be longer term
- What’s been holding you back, and how we can help
- Answer any questions you have about investing in property
By the end of the call, you will have a clear understanding of how we can help you achieve your financial goals through property investment and what your next steps should be if you decide to work with us.
Let’s discuss your current financial position to determine a property investment strategy that ensures you are not overextended today. Discover a safe and clever way to invest in property and take control of your financial future with OpenCorp today.