Lots of people love collecting, and once you have one investment property you'll know what I'm talking about. Once soon leads to another, then another, and before you know it you'll seem to be collecting them. It's like a hobby, a passion â€“ but better than that â€“ unlike most hobbies, collecting real estate won't cost you a fortune, rather the opposite is true â€“ it can make you a fortune! For some reason most people when they think of investment properties think of just one. They buy one property, and leave it at that â€“ and I can't for the life of me understand why.
Think about it â€“ you've worked and saved and scrimped and planned, and you've bought yourself an investment property. It's an investment which can bring you extra income down the track and probably capital growth in the short to medium term too. Buy why on earth would you stop there? It makes no sense. You have your property that you occupy, you have an investment property which may even be giving you income now. Why not take advantage of your good financial position and make even more money?
Double the assets, and double your buying power
The equity you hold in your own home, plus that you have in your investment property is what lenders look at when they consider whether they will lend you money for an investment property. Of course, they do consider your income when they consider the question of serviceability â€“ whether or not you can make repayments on the loan. But the equity â€“ which is the percentage of the real estate you own outright as opposed to that percentage still owned by the bank â€“ determines what you can use as a down payment on further real estate investments.
Let's use an example: You live in a home which is worth $200,000 and owe the bank $140,000 on the mortgage for the property. You also own an investment property worth $150,000 and you owe $110,000 to the bank on the mortgage for that property. Assuming you've had the properties valued recently, you have $60,000 equity in the home you live in, and $40,000 in your investment property. So that's $100,000 you have which you could use as a deposit on another property. How good is that?!
See most people will just sit there, happily paying off their properties â€“ and that's fine, there's nothing wrong with that. But I don't understand people in that position that say they can't afford another property. Look at the numbers in the example above â€“ you can afford it â€“ use the equity you've worked so hard to get in your existing real estate portfolio. Don't just stop at one, build your collection and buy another investment property.