Of course, you might be wondering: How do I get there? Fortunately, building a property portfolio is not as difficult as you might think, provided you get the right advice, obtain the appropriate finance structure and budget carefully.
I'm still paying off home mortgage. Can I buy an investment property?
Yes - of course you can. In fact, you may be in an even better position as an existing homeowner. That's because you have the existing equity in your property.
As you pay off your home mortgage, you'll build up the equity in your property. The equity is an asset's value, minus any money owing, explains the Australian Securities and Investments Commission. If you put down a 20 per cent home deposit, you've got 20 per cent equity in the property. Once you've paid off your mortgage entirely, you've got 100 per cent equity in your property.
You can tap into the equity that you do have, and use this to take out a loan on an investment property. This saves you having to come up with a deposit.
Alternatively, you can save a deposit in order to invest.
What kind of investment loan do I need?
As a homeowner, you want to try and pay off your own residential mortgage. As an investor, your needs may be quite different in that you may want to pay only interest on the loan and hold the property to gain capital growth and therefore equity over time. A cash-flow positive investment property can assist you to further reduce your own personal mortgage.
If you're borrowing to invest, you'll need to consider which kind of loan is right for you. For instance, there are interest-only loans and principal and interest loans. As well as the interest rate, which can be fixed or variable, the loan terms can vary, too.
However, if you want to build up the equity in your property faster, choosing the right property in an area of sustained growth will be important to give you capital growth.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186, Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and a related entity of DPN Pty Ltd. Casa Capace Operations Pty Ltd ABN: 79 624 981 184, NDIS provider Number 4050038018 trading as Casa Capace.