Depending on how much equity you have in your home, you can refinance to access this equity to cover the cost of your deposit and other fees of purchasing a property and pay nothing, or, more accurately, you don't need the cash in the bank.
Equity is the difference between your property value and the amount you have owing on your home loan.
To qualify for an equity home loan:
- You can generally release up to 80-90% of your property value in equity to buy a second property
- You must owe less than 80% of the value on your home loan
- Your mortgage repayment history must be perfect
- You will need to provide your last two payslips
- You will need to provide your most recent group certificate
- There are also low doc options available for self-employed borrowers who cannot prove their income through traditional means
- Your credit file should be clear of black marks
In some instances, you can borrow up to 105% of the property value.
While equity borrowing can be practical and convenient, you need to be mindful and weigh the pros and cons of this borrowing carefully, as there are risks if you fail to make loan payments. Risks of home equity loans can result in extra fees and a lowered credit score.
The main risks of a home equity loan are:
- Interest rates can rise on some loans
- Your home is held as collateral and linked to the investment property
- Equity can rise and fall.
- Paying the minimum could make payments unmanageable down the line
An equity loan could be a good idea if you use the funds to improve your home, invest in additional properties, or consolidate debt with a lower interest rate. However, a home equity loan is a bad idea if it will overburden your finances or if it only serves to shift debt around.
SMART PROPERTY INVESTMENT TIPS IN A HOT MARKET
There is a real estate buzz. The property market is hot, with properties selling as soon as they are listed in many areas (sometimes without even being advertised), resulting in a shortage of stock, which is ultimately one of the main driving factors increasing property prices. However, while hot property markets can create opportunities and excitement, you still need to be smart in your property investment decisions to avoid potential pitfalls.
Smart property investment tips for buyers and sellers:
- Consider buying a property in an area you are familiar with, as it will reduce your research time
- Get online and check recent sale prices
- Research the weekly rents for similar properties that you are looking to purchase to determine the potential income that can be generated and your return on investment (ROI)
- Take the time to find out what you need to do to be a successful buyer or seller
- When selling a property, do not get caught up in the hype that you do not have to do anything; taking the time to improve, prepare and stage a property for sale can potentially add tens of thousands to the sale price
- Do not always go with the cheapest option. Ask for testimonials, compare prices, but more importantly, look at outcomes, statistics, and results
- Understand the pros and cons of the different methods of buying and selling
INVESTORS BEWARE THE LITTLE THINGS THAT CAN COST YOU IF UNDETECTED.
When investing, it is essential that you choose the right property from the outset to reduce any day-to-day challenges during the management process of the tenant and property, but more importantly, to minimise any unknown and unexpected repair costs once you officially become the owner.
Following is a snapshot revealing five (5) common little unknown potential coverups of what you need to be aware of when purchasing your next property.
1. Illegal building constructions
This relates to building works, such as additions or alterations to a property without building approvals or a valid final certificate. These can include extensions, removing load-bearing walls, constructing decks, jetties, garages, carports, granny flats, pergolas, and the like. A property that is considered substandard, illegal in construction, unsanitary, unsafe, or unfit for human habitation can have serious consequences. Estimated costs to repair: up to $100,000+
2. Cracking
Some cracking that appears within a property, such as driveways, ceilings, walls, etc., can be considered normal wear and tear. However, all cracks need to be taken seriously, especially ones in external house foundations and walls. Large cracks (greater than 2mm in width); cracks that run diagonally across the wall; cracks on the interior finish in the same vicinity as cracks on the house's exterior should be a red flag concern. Estimated costs to repair: up to $50,000+.
3. Termites and timber rot
A property can have prior termite infestations that have been treated or potentially be infested. While some termite damage is visible to the naked eye, much of it tends to be hidden deep inside a home's wood components. Estimated costs to repair: up to $20,000+
4. Roof problems
It is not everyday practice for a buyer to get up on the roof when inspecting a property. However, cracked tiles, rust appearing on metal, or cracked pointing and bedding can lead to serious issues or the complete replacement of the roof. Estimated costs to repair: up to $20,000+
5. Rotten weatherboards and windows
Any paint peeling, cracks, holes, uneven surfaces, or splits in external wooden structures should be a high alert. Estimated costs to repair: up to $10,000+ It is highly recommended that before purchasing any property that you ensure that you invest in the services of a professional building inspector, pest-control company and appoint a reputable lawyer to manage the sale transaction. For such a small outlay, it can save you thousands.
You should not act solely based on the material contained in this newsletter. The information and statements herein are general comments only and do not constitute or convey advice per se. Seek independent professional advice before making any decision or acting.