If you’ve owned a single property for several years, investing in a second or third property is an excellent way to maximise your existing equity and grow your asset base.
In my opinion, residential property is one of the best possible investment avenues, and a solid basis for any wealth-creation strategy. Property is an asset that doesn’t normally bounce up and down in value, and is fully supported by a stable government and banking system.
Despite the benefits of property investment, many home owners are reluctant to make a second or third property purchase. Common constraints that hold people back from reinvesting in property include the extra finances needed to fund the difference between rent and a mortgage, a fear that the market will crash, and a belief that it’s best to pay off your home and non-deductible debts before you reinvest.
While the above arguments have some merit, the interest you save from paying off your debt first is nothing compared to what you could make through a second or third property investment. Rather than paying one dollar off your home loan, you might be better leveraging that dollar and buying five dollars of property which rises by more than you might be saving.
In addition, there’s a good chance your first property investment has experienced 10 to 30 per cent growth, which is now potential equity that can be used to cover investment costs such as a 20 per cent deposit, 5 per cent stamp duty and buyer’s agent fees.
From my experience, if you buy a property at a reasonable price and hold on to it for the long term, you’ll make money. The cost of putting off your decision to invest again can be very high, so if you can afford to buy a second or third property, it’s worth taking the risk.
Here are my tips for investing in multiple properties:
1. Develop a strategy
It’s important to organise your finances and clearly establish some goals about what you want to achieve through your investments, as well as the types of properties you want to invest in. A good mortgage broker can help you develop an investment strategy that reflects your circumstances and attitude to risk.
2. Consider buying interstate
With many property markets in Australia experiencing high prices, investing in more affordable interstate suburbs can be a good way to enter the market a second or third time. Diversifying your property investments geographically can also help ensure you always have a property that is rising in value. If one market experiences a downfall, you have the other one to fall back on.
3. Look for properties within the median price
Look for properties that are within 10 to 20 per cent of the median price in the area as that means 80 per cent of the population can afford to rent them. Remember to be selective about the properties you choose to invest in. Generally, properties with two or more bedrooms that are located 5 to 15 kilometres from major cities make great investments as they are close to transport, leisure and work, making them easy to find a tenant.