Posted on August 5, 2021
CAN I AFFORD TO BUY AN INVESTMENT PROPERTY
Many home owners believe that they can’t afford to buy an investment property. One of the main reasons that they believe this is that, they think that they need to save in order to put down a deposit.
This can’t be further from the truth.
Another reason in believing they can’t afford to buy an investment property is that, they have mortgage debt on their principal place of residence.
Now, in order to determine whether you can afford to buy an investment property, you have to figure out what your true borrowing capacity will be. This is not what your branch manager tells you.
So where do we start?
I suppose the first place to look is your employment history and earnings. Next is your level of debt and next would be your estimated value of your home. Now in order to piece all this information together, we have developed a FACT FIND that lays out all what a lender needs in order to determine how much they would be prepared to lend you.
We give this Fact Find to one of specialist investment finance brokers. They look at other factors such as, future interest rate hikes, variations on valuations, affordability on one wage, number of children, public or private schools, Part A & Part B Centrelink benefits, inflation – an actual host of factors that need to be taken into consideration before determining your comfortable affordability.
They then come back to us with a solid estimate of what you are able to afford.
If you are able to borrow using your equity in the home to invest in property, we can then research what property type will suit your particular financial circumstances.
Once we’ve honed in on the property, we run a Property Investment Analysis (PIA) to determine the cash flow. i.e. will the property be positively geared or will it be negatively geared.
This will then determine whether you are in a position or can afford to buy an investment property.
As a property investor, your contribution to the interest is made after the taxman and the tenant have paid their shares. If the property is cash flow positive, then you will have money in your pocket that can be used to pay down mortgage debt. This is an ideal scenario and the property is definitely affordable.
If the property is negatively geared, this means that you will have to contribute to paying the interest on the loan. This is where you have to determine how much you are prepared to contribute to maintaining the property over the long term.
This could be as little as $3 per week and can be as high as $100 per week, depending on the property. Can you afford this?
I, myself, am a fan of cash flow positive property because the property ends up paying for itself.
If I have a mortgage to repay, I can actually use a cash flow positive investment property to help me pay down the mortgage quicker. Go figure?
If you want any help in figuring out if you can afford to buy an investment property, don’t hesitate to contact us at www.propertyandfinancesolutions.com.au./contact-us