Helping Victorians climb the property ladder.
- Your first step to buying an investment property is to properly understand your full borrowing capacity
Whether you're just starting out on the property ladder or you're a seasoned investor, the first step to buying an investment property is simply understanding your borrowing capacity. You might be closer to buying your first or second property than you think.
BankVic's mobile lending manager, Michael Gallo, recently worked with two Melbourne police members: a 30+ year-old buying his first property as an investment, and a retired policeman and his wife buying their third property.
With a family home and an investment property in Melbourne's outer suburbs, the seasoned investors had more than enough equity to secure another investment loan. This time, they chose a property on the Surf Coast.
In this case, the first investment property provided sufficient security on the loan, leaving the family home reasonably protected in the event of any financial difficulty.
Michael says it's not unusual for BankVic members to own three or four investment properties.
"Once they start building equity, they also build in confidence," he says.
"Many investors prefer interest-only loans. They are often not looking to pay off the property in full or own it forever. They may want to pay a minimum on the loan until they see the capital gains. Then they can sell it off for a profit.”
BankVic protects its investment by using one or more of the existing properties, and the new investment, as security. It also sets a combined loan to value ratio (LVR) of 80%. That means the loan amount across all loans must be no higher than 80% of the current value of all properties.
For the first time buyer, who was buying an investment as his first property purchase, the investment loan application process was much like securing a first home buyer loan, Michael explains.
“There are a lot of questions involved when we are dealing with first-time buyers, whether it's a home or an investment property. We take the time to explain the loan and the investment process in general,” Michael says.
The investor found value in the Southern Highlands of New South Wales, buying a property for less than $500,000. With a sizeable deposit, he easily achieved a loan to value ratio under 80% and avoided paying lenders mortgage insurance.
Although he was not eligible for Victoria's first home buyer grant or stamp duty concession, he will still be eligible if he decides to buy a home to live in at another time.
Wherever investors are on their property journey, there are some common characteristics, Michael says.
"Investors have less emotional attachment to the property, compared to home buyers. They just look for opportunities where they can earn high growth,” he says.
“They also tend to spend less money on their investment purchases than their home.”
While apartments and units are common investments, BankVic's lending policy requires a lower loan to value ratio of 70% or less.
"If they want to buy an apartment in a high-density, sky-rise building, we warn them of the risks, that they might be selling it at the same time as six or seven other identical apartments.”