You may be a lot closer to owning an investment property than you think. If you are interested in finding out more please keep reading.
Investment of any kind always carries a certain amount of risk and this is certainly true of buying rental property. However, when you invest in property at least you can always drive past it and check on it any time you like and you have a lot more control in all facets when compared to other investment choices. The tips below are from my own personal experience and are by no means intended to replace or substitute professional advice from your accountant/solicitor/mortgage broker. Enjoy!
Tip 1. Know your LVR! Loan to Value Ratio. This is quite simply the amount of your mortgage as a percentage of the overall value of your home. If you owe $320k on a home worth $400k then you have an LVR of 80%. To calculate your current LVR divide your mortgage balance by the value of your home (320,000 / 400,000) then multiply the answer by 100. When you go to buy an investment property the bank will look at what your LVR is going to be across the 2 properties. I have one client who has just been pre-approved subject to an LVR of 85% across 2 homes. For example – if your property is worth $450k and your mortgage was $345k, you could potentially afford to buy an investment property worth $250k at an overall LVR of 85%. Before investing you should set a target LVR level that you are comfortable with. For some people that might be 85% and for others that might be 60% or 70%. I suggest you decide on this in consultation with your accountant/solicitor and mortgage broker.
Tip 2. Meet with a Mortgage Broker. I suggest meeting with a mortgage broker as your next step. Their service is free (they get paid a commission by the bank) and they can give you a clear idea of what is possible based on your current situation. Your broker will keep everything confidential and even if you are not quite ready to buy an investment property yet, they can help you set some goals and show you where you need to be to make it happen. For example, your broker might say you need to pay 20k off your mortgage and then you can start looking. Wouldn’t it be helpful to know exactly where you need to be? Would that help you save a bit more each week and pay your mortgage off a bit faster if you had an immediate goal in mind? I have an amazing personal mortgage broker who has helped countless clients of mine through this process – reply to this email or phone me and I can put you in touch.
Tip 3. Get educated. It is really important to absorb as much information as you can about any investment before diving in with your hard earned money. The best book I have ever read on property investing is called “Real Estate Investors’ Secrets” by Graeme Fowler. The subtitle of this book is ‘How 10 New Zealanders became millionaires from residential property and how you can too’. Another excellent option is to join your local property investors association – a great source of information and an easy way to meet experienced investors who love helping first-timers get started. Click here to visit their website.
Tip 4. Set your buying criteria. There are a lot of properties to wade through on trademe. Even in this market where we are seeing an unprecedented shortage of listings available, the choice of areas and styles can be daunting if you don’t have set criteria in mind. Ask yourself a few questions – Would you like to be able to drive past your investment every day if you want to? Would you be happy with a 6 or 7% return? Or are you only comfortable with 8 or 9%? This may influence how close to town your investment property can be. Whichever area you pick I suggest buying close to schools and transport. Wellingtons’ Northern Suburbs are pretty cool by the way 🙂 If you would like to catch up over a coffee to discuss your criteria and get some ideas, please call me on 0800 286 686.
Tip 5. Make reasonable offers. There is a school of thought in real estate investment that you should make 20 crap offers on houses way below valuation, have 3 accepted, and confirm 1 of them. This is the ‘throw enough mud at the walls and hope some of it sticks’ method. It can work however I see 2 issues with it. 1 – you will piss off every real estate agent you deal with (I totally don’t mind as long as it’s not me by the way). 2 – the only property you usually end up buying is the house that no other buyer wants. If you ever need to sell that property again then chances are no one will want to buy it next time either. I suggest getting to know the values in your chosen area and making realistic offers to buy at a fair price. Click here to read last weeks update with 5 mistakes to avoid when buying which can help you save thousands when offering.
Thank you for taking the time to read. Have a wonderful week.
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