For many property investors, organising a second property mortgage by leveraging the equity in their first property, is the smartest investment strategy they ever make.
Have a look at how we helped one particular lady..
It may not be the ethos of your grandparents’ generation, but being debt-free isn’t necessarily the path to financial freedom. This is why:
You want to build on the equity of your first property.
Equity is the amount of money in a property that you actually own. It can be calculated by working out the difference between what your property is worth and what you owe on the mortgage.
The idea is to borrow now and accrue wealth.
Your grandparents are only partly right. Reducing your debt is a good thing. However, if you already have a sizeable amount of your first mortgage paid, the few thousand you’ll save in interest will pale in comparison to the potential of hundreds of thousands of dollars gained in investing in a second or even a third property.
Think about how much a property could increase in value in the years it takes to whittle down the last of your first mortgage. The sooner you invest, the sooner you can see your property’s value increase. Using the equity in your first property to arrange a second property mortgage can be an excellent strategy.
Consider the tax benefits of buying a second property.
Most property expenses can be offset against rental income, for tax purposes, including interest on any loan used to buy the property.
Most people will borrow to invest in property. This is called ‘gearing’. Negative gearing is where the income from your investment is less than the expenses. Positive gearing is where your income from an investment is higher than your interest and/or other expenses.
The real potential income.
The cost of owning an investment property can be surprisingly low after you take into account your rental income and the tax deductions. So sometimes the property will be negatively geared but have a positive cash flow because of the deductions you can claim back.
Getting the second property mortgage right and minimising risk.
Structuring your loan correctly is critical and this should be done with the help of a trusted mortgage broker.
Any good mortgage broker will be thinking about your second property mortgage as only the beginning of a future real estate portfolio.
Making sure your mortgage broker is future-focused.
A good mortgage broker is working two loans ahead of you. This is why you should ask for the services of a mortgage broker who specialises in investment properties. For instance, a good investment-focused mortgage broker knows using the same lender for your second property may decrease your borrowing options in the future.
Most specialist investment gurus will advise you against mixing up investment property loans with your home loan, but you always need to get specialist and qualified advice.
The trick to minimising the risk and increasing your potential is employing the right experts for the job. Namely, a trusted buyer’s agent as well as the all-important mortgage broker.
Both of these experts should have specialist experience in investment strategy and a very clear understanding of how to make a second property mortgage work for you.