So, you’re thinking about investing in property to create wealth for yourself but you’re not entirely sure how the money side of things works? That’s OK. It might seem a touch confusing but really financing on a mortgage basis is quite straightforward. Let’s take a quick look at what you really need to know:
You Need A Deposit
A deposit is a percentage of the purchase price that you will put down in cash. Typically 10 – 20% is the norm for deposits on investment properties but there may be a little leeway in this depending on your relationship with your financial services providers and your credit rating.
You may find that if you can raise a little more than 20% that you can get a better deal out of the bank or financing institution too. They may be prepared to lower their interest rates for that.
You Will Pay Interest On A Mortgage
Interest rates are at an all-time low which is a good thing if you’re buying today but you should be aware that you will pay interest (and typically slightly higher interest rates on investment properties compared to a mortgage on a property you will live in). That means you want to look carefully at your expected rental income from the property – buying a property with a decent rental income is essential to avoid problems with interest further down the line.
Your Credit Rating Matters (A Bit)
The mortgage interest rate will take into account your credit rating and may be higher for those with low ratings or with short credit histories. However, as the bank takes control over the property as its security for the loan – it is unusual for anyone with a deposit to be refused credit on an investment property even with a poor credit history. It just might be a bit more expensive for the first few years of the mortgage.
You Can Leverage One Property As Collateral On Another
This is pretty important. Once you’ve paid down the mortgage on one property a bit, you can use that property as additional security (in place of a deposit) to get a mortgage on another property. This is a trick that experienced property investors use to greatly increase their investment portfolio. It generates wealth very quickly indeed. You do, however, need to do this cautiously and not over expose yourself to a change in interest rates.
You Could Consider Crowdfunding Too
If you can’t get the deposit together for your first investment property, you might consider crowdfunding or going into partnership with friends to raise the money. Then in the future as your wealth accumulates you can take on complete investments yourself.
Want To Get Started?
The one thing that the finances don’t tell you is how to spot the best possible investment properties to maximize your returns. That’s where I come in. Get in touch and let’s talk about how you can become wealthy through property investment, today.
