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| Buying Your First Rental Property With 0% Deposit |
Today we visit some of the fundamentals of getting into an investment property. As many New Zealanders embark on their love affair with houses, a few use it as some type of retirement plan. Surprisingly some of our astute investors have paid little from their own pockets to buy a second and then third property. This is due to equity being used as a deposit for another home.
With low interest rates and high rents you can have your tenant paying the mortgage off for many years. Lets look at the numbers in a little more detail.
0% deposit
Below is a very simplified version of what equity is and how it can be used as a deposit on another house. The difference between what your house is worth now and the loan, is called equity. Equity is essentially what you "own" of the house and can be used as a deposit on another house. However the thing to remember is that your banker will earmark some of that equity for the original deposit.No repayments
In the current climate with low rates and high rental returns particularly in main city centres you might find that you can kick start your investment portfolio with little or no payments from your pocket. As an example lets look at a loan of $270,000 used to purchase a rental property.In the current market we are able to usually fix a rate of 5.50% for 3 years after a bit of negotiation. Apart from the loan repayments you will find that in this scenario the council rates and house insurance will be around another $50 per week. This amounts to around $2,600 per year from your pocket to own another home. Request loan assessment
Risks involved
If using your own home to buy another house, the major risk is if the future situation changed and the bank forced you to sell due to non payment of the mortgage. In this type of situation the bank could sell either house. There are things you can do to minimise this type of risk, such as;- Keep some back up funds from day one so that you can pay for both mortgages if your tenant should move out
- Buy well within your budget so that any extra maintenance required or change of tenants does not mean major stress
- Do you homework and have a close look at other costs which can come up