Things To Consider When Buying A Second Property
Buying a second property is an exciting prospect for many people, but it can also be a daunting task. As an experienced mortgage broker, I know that there are many things to consider when buying a second property, and that is what this blog post will explore. We will look at some of the key considerations, such as location, financing, insurance, and tax implications, so that you can make an informed decision and get the most out of your second property purchase. So if you’re looking to buy a second property, read on to find out all you need to know.
Assess Your Financial Situation
When it comes to buying a second property, it is important to assess your financial situation. This means taking a look at your current income, assets and liabilities. You should also consider your capacity to manage a second mortgage, as this will affect your ability to meet your repayments.
It is important to establish your budget and determine how much you can realistically afford to pay for a second property. This can be done by considering your current income and expenses, as well as any debts you have. You may also want to factor in any potential future changes in your income or expenses.
If you are looking to purchase an investment property, you should also consider the return on investment that the property is likely to generate. You should also look at whether the rental income from the property will cover any mortgage repayments, as this will help you decide whether the investment is a sound one.
It is also important to ensure that you have enough cash reserves to cover any unexpected costs associated with your purchase. This could include legal fees, stamp duty, repairs or maintenance costs.
Finally, it is important to consider the impact that buying a second property may have on your family law or estate planning arrangements. A second property may affect any arrangements that you have in place concerning your assets, so it is important to discuss this with your lawyer or financial adviser before making any decisions.
Consider Tax Benefits and Other Incentives
When considering the purchase of a second property, it is important to take into account the tax benefits and other incentives available. Australia is a country that offers some of the most attractive incentives for property buying, so it is worth exploring what incentives are available to you.
The most important tax benefit for property buyers is the ability to claim capital gains tax (CGT) exemption on the sale of the property. This can be a particularly attractive incentive for investors, as the CGT exemption will help reduce the amount of tax owed on the sale of the property. It is important to note that the CGT exemption only applies to properties that are held for more than 12 months, so it is important to ensure that you are planning for the long-term if you are looking to take advantage of this tax benefit.
It is also worth considering any other incentives that may be available, such as the First Home Super Saver Scheme (FHSSS). This scheme allows eligible first home buyers to save for a deposit using their superannuation fund, and then withdraw the savings (plus any earnings) to help pay for their property. It is important to note that the FHSSS must be used for the purchase of a primary residence, so it is not applicable for second property purchases.
Another incentive to consider is the First Home Loan Deposit Scheme (FHLDS). This scheme allows eligible first home buyers to purchase a home with a deposit of as little as 5%, as long as they meet certain criteria. Again, it is important to note that this scheme is only applicable for the purchase of a primary residence, so it is not relevant to second property purchases.
Finally, it is important to note that there are different rules for investors who are purchasing a property for investment purposes, and it is worth consulting with a professional to ensure that you are fully aware of your obligations.
In conclusion, when considering the purchase of a second property, it is important to take into account the tax benefits and other incentives available. There are a number of attractive incentives available in Australia for property buyers, so it is worth exploring what incentives are available to you. However, it is important to note that many of these incentives are only applicable to the purchase of a primary residence, so it is important to ensure that you are aware of any limitations when considering a second property purchase.
Research Property Market and Location
Researching the property market and location is an important step in the process of buying a second property. The market is constantly changing, so you need to make sure you are up to date with the latest information.
When researching, it is important to consider the location of the property. Factors such as access to public transport, proximity to schools and amenities, crime rates, and the local job market can all be important considerations. Additionally, it is important to look at the demand for the property in the area. This can be determined by the number of properties listed for sale, the amount of time they are on the market, and the average selling price in the area.
It is also important to consider the current economic climate. Are there any trends in the property market? Are prices rising or falling? Are there any new developments in the area? Any of these factors could have an impact on the value of the property you are considering.
Finally, it is important to consider the potential for capital growth. This is especially important if you are looking for a long term investment. Look for areas where there is potential for development, such as infrastructure, jobs, and amenities. Additionally, research the rental market in the area. Are there any restrictions or regulations that could impact the rental potential?
By researching the property market and location, you can make an informed decision when choosing a second property. This will help you make a more informed decision and ensure you get the most out of your investment.
Understand the Costs of Home Ownership
When it comes to buying a second property, it's important to understand the costs associated with home ownership. It's not just the cost of the property itself, but the ongoing costs associated with owning the property.
One of the most important costs to consider is the Stamp Duty. This is a one-off cost that is payable when purchasing a property. It is calculated based on the purchase price of the property and the relevant state or territory's Stamp Duty rates. In some cases, Stamp Duty may be exempt or reduced for certain types of properties. For example, first home buyers in some states may be eligible for a concession or a rebate on Stamp Duty.
Another important cost to consider is Council Rates. This is an annual cost that is payable to the local council for the upkeep of local infrastructure and services. The amount of Council Rates you pay will depend on the size of the property, the location and any improvements that have been made to the property.
It's also important to factor in the cost of insurance when buying a second property. This includes buildings and contents insurance, which will cover the cost of any damage to the property, as well as public liability insurance, which covers any accidents or injuries that may occur on the property. It's also a good idea to consider taking out landlord insurance in case of any damage caused by tenants.
Finally, it's important to consider the cost of maintaining the property. This includes any general repairs and maintenance that may be necessary, as well as ongoing costs such as water, electricity, gas and other utilities. It's also important to factor in any costs associated with renting out the property, such as advertising, tenant screening and other associated expenses.
By understanding the costs of home ownership, you can ensure that you are making an informed decision when it comes to buying a second property. Make sure to thoroughly research all of the costs associated with owning a property, so that you can make an informed decision.
Got questions about your home loan? Let's talk
Buying a second property is a big decision that requires careful consideration. At Ello Lending, we have the experience and expertise to help you make the right choice. We are here to answer any questions you may have and guide you through the process. Don't hesitate to contact us today and let us help you make the best decision for your future.
