When contemplating property investment in Australia, there’s often a misconception that it’s exclusively reserved for affluent individuals. However, many people fail to explore the abundant opportunities available. So, just how much does one need to embark on their first investment property journey? The answer is surprisingly yes. With an annual income of 70k, you can become eligible to enter the property investment market. This article delves into your borrowing capacity, the associated costs, and the various property types that a 70k earner can consider for their investment journey in Australia. How do I calculate my borrowing power? There are many online calculators that you can use to estimate your borrowing power. These calculators as mentioned are only a rough indication. Though these are good indication of your borrowing power, the best and accurate way is to speak to a good mortgage broker to understand your borrowing power. They will do a thorough assessment of your finances to inform you of your borrowing power. How does the bank assess my borrowing power? When assessing your eligibility for property investment or borrowing power, lenders or banks take several factors into account, including your income statement, dependents, and existing loans. So, let’s assume both you and your wife are gainfully employed, and you have a 5-year-old child. Currently, you don’t own a Principal Place of Residence (PPOR) and are renting. With an annual income of $70,000(just one person’s income) and a shared monthly expense of $1,600 (total expenses 3200 which will be split with your wife), you’re in a favorable position to explore property investment opportunities in Australia. Anticipating an expected rental income of $420 per week from the property you plan to purchase, you’ll be pleased to know that lenders can provide you with a borrowing capacity of up to $393,000. However, please note that this figure represents the amount you can borrow from your bank and not necessarily your maximum budget for property investment. What is my maximum purchase price? With a 12% deposit, you can buy a property of $440k. What are the costs involved in buying a property? Maximum purchase price: 440K 12% deposit: 52,800 stamp duty: 15,263 Lender’s mortgage insurance: 6458 conveyancer’s fee and other closing costs: 2500 building and pest inspection:500 Total: 77,494 At this point, you might be formulating some questions, such as why opt for a 12% deposit instead of 20%? The answer is that while a 20% deposit is certainly an option if you’ve managed to save up that amount, you don’t necessarily need to wait until you have a 20% deposit to begin building your property portfolio. What can I buy as my first investment property? Prior to delving into this venture, it’s advisable to outline your long-term goals. Take a moment to clarify what you aim to accomplish with your investment properties. How many properties do you aspire to include in your portfolio? Defining your objectives and portfolio size will provide valuable direction for your property investment journey. If you have intention is to build a portfolio of many investments, you should consider a property that gives you both capital growth and rental yield. “I see many of my friends buying house and land packages”: Again, always ask the question about the long term plan. If your intention is to build a portfolio of properties, you should buy something that grows in value. A simple criteria to look at: a) Land size more than 500sqm b) Land to house asset ratio: At least more than 60% c) Consider a suburb where it has not grown 50% in the last 3 years. d) Consider a suburb where there are many future developments/projects e) Consider a suburb where there is no developable land around the area particularly for more residential homes. These are some of the factors that you should consider. Although there are macro and micro level factors to explore, the above mentioned indicators should help you focus on the right direction. https://australiamovingplan.com/category/property-matters/ What happens after purchasing Investment Property 1? When you buy in a growing suburb, your investment property will be increasing in value. You will be building equity from this property. You can do a refinance to take equity from investment property 1 to buy your second one. You can repeat this cycle and build your portfolio property. Of course, the banks will assess your serviceability to check if you have the borrowing power. What happens if my borrowing power is maxed out? You can consider looking at smsf to purchase your investment properties. You may refinance your investment property after 6 months or a year. Meanwhile, think of ways to increase your income. The most important lesson is to understand that your first property lays the foundation to build your portfolio. How about owning my PPOR? If you opt for a rentvesting approach, much like the example illustrated in this article, you’ll experience the delayed gratification of acquiring your Principal Place of Residence (PPOR) later in life. By strategically building a portfolio first, you pave the way to attain your dream house in the future. While rentvesting may be considered an unconventional path, it’s steadily gaining popularity. However, it’s essential for each individual or family to carefully assess the pros and cons of rentvesting to determine if it aligns with their unique circumstances and goals. Conclusion A person earning 70k a year with a partner and a child can afford to build his/her own investment property portfolio. There are many factors to consider before and after your purchase. Remember that property investment is a significant financial commitment, and it’s essential to conduct thorough research and seek advice from the real estate professionals before making any decisions or spend adequate time doing your own research.
February 6, 2024
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