Ready to double up on your property assets?
For a lot of Australians, just buying one home is enough. But for many, buying their first home is one step on a much bigger journey.
Whatever your reason for buying a second home, it's a very different process from the first. Here's everything you need to know.
You're no longer eligible for grants
Every state or territory has its own version of the first home owners grant (FHOG). This windfall can shave thousands off what you pay for real estate (for example, $10,000 in NSW), but generally only your first time around - even if you're buying or building a new home.
When you're building your real estate portfolio with a second property or simply upgrading to a bigger house, you'll have to make this up from your own pocket.
You can leverage your equity
If you already own property, you have a golden ticket to grow your assets.
The fact that there are no grants might appear to make the process more difficult, but if you already own property, you have a golden ticket to grow your assets. As you pay off the home loan on your first property, you build equity in it - value that is inherent to the home.
This also increases as the dwelling value rises. Considering how real estate tends to grow over the long term, this suggests that you might have a healthy amount of equity built up in a first home already.
You can use this as security against your second home, giving you a significant leg-up.
You might be able to boost your income
Depending on your situation, you may be looking to move into the new property, and use the old one as a rental. This adds a new income stream to your cash flow, and can be very beneficial for your day-to-day budgeting.
However, you have to make sure you can afford it - especially if it's in an area with low yield. Speaking to a financial planner is recommended whenever you are trying to make an investment property work.
How to structure your home loan
Managing a home loan when you are borrowing for two properties as an investor can be tricky. Do you refinance your existing mortgage so it covers both? Do you take out a separate investment loan for the new home? How much can you even borrow?
It is a delicate balancing act, but one that is going to be crucial to your wealth management. Professional financial planning advice is going to be essential to make sure you structure your debt in a way that allows you to make long-term gains.
Should you buy or sell first?
It's the little differences that will keep you on your toes.
If you are upgrading to a new home, you might not be sure what to do first - buy or sell? This is going to depend entirely on your personal situation as well as the health of the property market where you are buying or selling. If there is strong demand for properties, then you might be able to buy when you feel ready, comfortable in the knowledge that there will be plenty of people ready to buy yours. There are special types of loans for these situations called 'bridging loans'. An experienced broker will be able to explain the ins and outs of how these work.
On the other hand, if you sell first, will you find yourself without a home if you struggle to buy? It's an important juggling act to keep in mind when you're upgrading or downsizing.
While the actual process of buying a second home might seem like a breeze compared to your first time, it's the little differences that will keep you on your toes. Talk to a Yellow Brick Road local representative for more information on getting that second home!