Making the decision to invest involves careful planning and thought, especially when it comes to property. You have to decide where you want to buy, how much you want to spend and make sure that you can cover all expenses. If you buy a residential property and rent it out, the rental income may cover this, however, there are many other costs which may put a significant dint in your budget. What do you need to know before investing and how can you make sure that your investment decision results in a financial gain? Read on to find out.
Getting finance
The first hurdle is getting finance. Whilst most banks allow investors to borrow 90% of the purchase price, this is subject to a serviceability assessment which takes into account your credit history, employment status and income. Investors that wish to borrow 95% can do so, however the banks assess this on a case by case basis. Lenders Mortgage Insurance is also applicable; however some banks will include it in the loan amount. Once you get finance and purchase a property, it may be easier to get additional loans for other investments.
The banks will see that you have a strong record of prompt repayments and you can use the equity in your existing properties to get a loan with no deposit! If you choose to buy a residential property and rent it out, the income you receive can help cover your mortgage repayments. Read on to find out what rental income is and how it can benefit your wealth.
Rental income
This is the income that you earn through renting your investment property out to tenants under an agreement. Some properties such as display homes and properties rented by the government, offer a rental guarantee which guarantees rent to the owner, for the life of the rental agreement. Where you are buying and renting privately, the rental income you earn can help cover both the principal and interest repayment on the loan and may also help to pay other costs. Where the income does cover the mortgage repayments, this is known as positive gearing, and this serves as an indication that you are not losing money on your investment, and going out of pocket.
However, where the rental income does not cover your loan repayments and you have to pay for costs, these are tax deductible. This is called negative gearing and this also has its benefits.
Where you do have sufficient personal income to pay the mortgage of your investment property, the added rental income can reduce financial pressure and allow you to spend more enhancing your quality of life, holidaying or further investing.
How to calculate your annual yield
When figuring out how much rental income you will receive from your property it is first important to determine the earning potential of the property. The best way to do this is to speak to an agent who can give you a more accurate estimate of the amount that your property is likely to be rented out for.
However, generally you can get an idea by looking at similar properties in the area, with the same size block, rooms and condition as yours. Whilst this gives you an idea of the rental income, it is important to bear in mind that your property may not be occupied all year round. There may be times where there are gaps between tenants and the property is vacant. During this time you will not be receiving any rental income and will have to cover the mortgage repayments and other costs.
If the area that you are buying in is in high demand, your property may be occupied all year round. However, it is also best to compare your property to others in the area to see how frequently they are vacated.
There are also other things to keep in mind including the on-going costs associated with property ownership. These include paying for repairs, maintenance and upkeep of the property, insurance, council rates and other expenses. You then need to consider your mortgage and interest repayments, which may amount to quite a significant sum.
With all this information, you can determine whether your rental income will cover monthly expenses, which include a combination of mortgage repayments and other costs. This way you can determine whether it is feasible for you to purchase the property and whether you will be able to afford it.
Costs
Although you may be receiving rental income from the property you have bought, it is necessary to consider the costs associated with purchasing the property, as well as the on-going costs involved in ownership. Even before purchasing the property it is important to conduct research on the area you are wishing to buy in, find out the market value of the property and enlist the services of financial planners or estate agents.
When you decide on what to buy, you will need a conveyancer and perhaps legal assistance. This is on top of the mortgage repayments you will make every month, as well as the stamp duty payable on the purchase price. All this can be quite a significant amount!
Once you own the property there are other costs included insurance, rates and other expenses for maintenance and repairs on the property, especially if you are renting the property out.
The costs can add up, so it is important to keep these in mind when deciding whether to buy.
Invest today!
If you think that it is feasible for you to invest, start looking at property and start speaking to the right people. Experts in the field can help you make informed decisions and assist you in planning your future investments.
Tags : iPod Touch Sharp Aquos Lcdtvs
0 comments:
Post a Comment