Things to consider when buying your second home
It’s assumed purchasing a property is like riding a bike; once you buy your first property it’s easy to just repeat this when you purchase again. But this isn’t always the case and a trap that second home buyers fall into easy. Depending on how long it has been since your first home purchase, a lot may have changed in the property market from buying grants to interest rates. So, what things do you need to consider when your ready to buy your second home?
Let’s start by talking about equity. If you have been in your first home for some time, you may be building up equity which can put you in an ideal position to consider a second property.
So, what is equity and how can it help you buy your next home?
The best way to put it is that equity is the difference between your property value and the amount you have owing on your home loan. For example, if your home is worth $500,000 and you owe $350,000, your equity is $150,000. You can generally release up to 80-90% of the value in your property in equity to buy a second home however if you are eligible for a second home loan, you may be able to use up to 80% of this equity as a deposit towards your second property. This means that you don’t have to save for another deposit, how good is that!
Before you take the plunge, there are a few tips you should consider when buying your second home:
Know why you want a second property
Before you even begin searching or researching for your second home, it’s important to consider why you want to make the next move. Whether you can purchase your dream home in an ideal suburb, looking for an investment or simply grown out of your current home, make sure your making a second move for the right reasons.
If you are purchasing as an investment, consider those hidden and long-term costs associated with owning a second house, such as maintenance. We recommend researching rental returns, and perhaps consider renting out your existing home as you move into your new home. Having a clear understanding of your goals will help direct decisions such as where to buy, how much to spend, and the type of property you are looking for.
Research and plan
A smart investor has a plan and to have a good plan, copious amounts of research is required. So, if you’re ready to make the decision to purchase your second home, it’s crucial to consider rental returns and do your research. These will fluctuate, so if you’ve been a homeowner for some time, talk to your local real estate agent about the demand for rental properties, and rental prices in your area as this will play an important role in purchasing your second home.
It’s also worth looking at the rise and fall in property prices. Since the COVID-19 global pandemic, the Perth housing market has seen a soar in housing prices but a drop in interest rates. The historically low interest rates may also entice you to consider making a purchase sometime soon. Purchasing another property can also have a significant impact on your tax so another thing to consider is talking to a tax accountant about how purchasing and renting out a second property will affect your tax.
Stamp duty is now a thing
Don’t forget to calculate purchasing costs, like stamp duty, and conveyancing, especially if you took advantage of the first home buyers grant for your first home. Chances are when you purchased your first home you were eligible for the First Home Buyers grant where stamp duty was exempt, unfortunately this is not the case with your second home so be sure to factor this into your planning.
You should also ensure you have a comfortable buffer zone or what we call an emergency back up in case you hit a rough patch. Another factor to consider is that you need to be able to afford both mortgages, if your second property is unrented for any length of time, or if you run into unexpected maintenance costs.
Can you afford a second property?
When you purchase your first property, you need a deposit however when purchasing a second property, you may be able to leverage your equity, which means you don’t need to save another deposit. It’s important to that linking both securities to the same loan would mean both properties are at risk if you default on the mortgage. The good news is our finance team at Nicheliving can help guide you through the process of purchasing your second property and make the process seamless and as effortless as possible. Chat to Kevin today.
What to do with your current home?
When it comes to selling your first home, there are many options available out there from renting it out, selling or turning it into an investment property. If you decide to sell then it’s important to remember that if your next deposit is more than the funds from the sale of your house, you’ll need to chip in some cash as well.
Make sure you’re ready for any changes to your existing expenses (this is where a budget tracker comes in handy!). Think about how much you currently spend on your mortgage repayments, insurance, maintenance, rates, commuting and other costs then compare this to your new repayments to make sure moving is the right decision for you.
Our knowledgeable residential team can assist in re-selling or renting out your first home so get in contact with Peter today.
Consider types of sale
The type of property, your target buyers and your personal circumstances will all affect which method is best when selling your home. Your local market will be one of the biggest factors, in some areas, auction is the preferred method of sale, while in other areas, buyers prefer private treaty sales when purchasing a home.
When it comes to selling your home, same day, simultaneous settlement is the ideal scenario. It’s when the sale of your current home and the purchase of your new home happen on the same day, so the funds just move from one loan to the other. It also means you won’t have to pay two mortgages at once, or rent a place in between selling and buying so it’s a win situation for all.
An important tip we give second home buyers is to try avoid a subject to finance sale as this will effect your ability to buy. Your real estate agent (or a Nicheliving representative) will usually advise which method of sale is best for your property your personal situation, and which method will help you achieve the best sale price.
Need some further assistance?
As a one-stop property shop, Nicheliving has everything from residential, property sales and an experienced finance team to assist second home buyers. Our Nicheliving property Specialists can help you consider other options – like bridging finance which is a short-term loan to cover you in between selling your house and buying your new one.
We understand that making the decision on what to do with your first home can be a tricky one, luckily, we have an entire Nicheliving Residential and Finance team who can assist in finding the best solution for you. Our residential and finance teams are led by industry leaders with over 40 years combined experience so we can guarantee you can trust them every step of the way. Contact us today.