The truth is, most people who own an investment property don’t have the intent on creating a portfolio of properties.
Research from the Australian Taxation Office indicates that 72.8% of investors own just one property, with 18.9% owning two. That number is whittled down even further to 0.6% if they own more than six.
For many individuals, they are often hesitant to invest in a second property because they are unsure of the right time. People can find themselves in a catch-22 situation where they need both the financial capacity to invest again and the market to be good.
If you are unsure about when to invest, this dilemma shouldn’t put you off. So, we have collated some of our handy tricks we use for people to buy at the right time.
Know you are financially able
Even if the broader property market has reached a low and you see your window of opportunity to invest before they price increase again, there’s no point in investing if you will be left worse off.
The entire point of an investment property is to stabilise your financial health and eventually provide a second source of income. So, to buy when you are not in the financial position to do so would be unwise.
A good guide to knowing you are in a solid financial position is when you have started to produce an income off the first property. If that property is vacant, and doesn’t look to be occupied soon, or the initial investment is still causing you a loss rather than a gain, then a second investment won’t solve it.
Many advisors also recommend having a certain amount of money saved as a buffer for all the initial costs incurred with purchase. That includes:
- Purchasing price
- Stamp duty
- Legal fees
- Loan mortgage insurance
- Building inspections, pest control
Ensure your first property is virtually self-sufficient
We briefly touched on it in the first point, however, if your first property is still causing you problems, we recommend against a second investment.
Ensure the property has tenants who are treating the place well and intent to be there for a long period (or at least long enough to cover the initial upfront costs of the second investment). In addition to that, you want to make sure all of the major repair and maintenance has occurred, so those aren’t even further costs you have to incur.
Engage an experienced property consultant
We could write you a detailed template to buying another property, but it still won’t provide you with all the intellectual knowledge an experienced property consultant has.
A property consultant is aware of the current trends in the markets; they can identify the potential for capital growth, and produce a positive cash flow.
Rather than trying to wrap your head around the complexities of the property market, a professional can process the information efficiently and effectively to find a property for you that best suits your current needs and wants for the future.
At Property Queensland, we are constantly across the changing market conditions so we can personally advise you on your next property move, rather than provide you with generalised advice.
Consider how you are going to pay for the property
You will notice that most investors don’t sit around saving their money as the means to buy their next property.
They use something called equity.
To break it down, equity is the difference between the value of your property if you put it on the market and then the amount you owe the bank for your loan.
You are entitled to use some of your equity – useable equity – but definitely not all. NAB suggests that banks will typically give you about 80% of the market value, minus whatever you still owe to your bank.
The equity on your property can be used for a multitude of things, but one of the main ways is wealth creation through investment.
Since you purchased your first investment property, ideally the market value will have increased, so you will also have an increased usable equity to invest in the next one.
However, it is stressed that just because the equity is available doesn’t mean it should be used. If equity is the only source of financial security you have, with no other buffers, then we recommend delaying investment until you are in a more stable position.
These are just a few of our tips to thinking about building your portfolio, but our greatest recommendation is to get in touch with us today! It is better to ask questions than take a risk (and it not pay off)!