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Rent Continues to Rise

Friday, May 16, 2014

 

You can buy some shares in a company with just a few hundred dollars. And you can start a bank account with just a few cents.  How much do you need to invest in real estate?

Real estate investment requires a far greater initial outlay than other investment options.

So how much do you need?

Generally, you will need at least a 5% deposit and you should also allow 5% for stamp duty, fees and charges (unless you are a First Home Buyer which will be discussed later). So allow at least 10% of the value of the property as your required contribution.

For example to buy a house for $350,000 you will generally need 10% = $35,000.

Ouch – there are ingenious ways to raise the 10% required which will be discussed in later chapters.

You then take a mortgage to pay for the balance of the property.

For example the $350,000 house above – you have paid a 5% deposit of $17,500 and spend the rest of your funds on fees.  You will then need to borrow the remaining $332,500.  This will be a 95% LVR (Loan to Value Ratio) loan.  Not all banks are comfortable with 95% loans.

In order to be granted a mortgage loan in the first place, particularly a 95% LVR loan, you usually have to present a deposit and proof of income information to convince the lender you will meet your mortgage repayments.

More detail on types of loans and the loan application process will be provided in later chapters


The good news for most Australians is that these days you can make the repayments on many mortgages for the same price you would fork out to rent a similar property.  Some banks will take the rent you have been paying consistently as evidence that you can afford the mortgage.


The initial outlay to buy your first property will sometimes deter the nervous investor from taking the plunge into property.


The hardest part of breaking into property investment is buying your first property. As long buy a good property in a good location (issues this book will help you with in later chapters), then you can generally move onto your next purchase, and the next purchase, quite smoothly from here. This is because of the combination of two powerful factors – Equity and Leverage.

Equity = the difference between the Value of the property and what you Owe the bank 

Leverage is explained in the following chapter.


If the first property you buy is a "bargain", or there is a surge in the market, or you manage to add value (see later chapters) may see you earn equity quickly.


Equity in one property can be used as leverage for your next buy, and so on and so forth.


Breaking through the initial capital requirement barrier will be your toughest problem, but once you utilise your friends Equity & Leverage, you will be able to move forward as a real estate investor with ease.

 

Do you want to know more? Click here to watch five free webinars on - ‘Proven, Must Know, Property Investment Advice’

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