Thinking of Buying a Second House & Renting the First?

Date Tuesday, 27 February 2018 12:00 AM

 Time to Read: 3-minute read

If you own your own home, your #1 financial goal should be to pay off your mortgage, right? Not always. Some astute homeowners leverage their existing home to buy a second house and rent the first. This strategy is all about acquiring more assets to build future wealth vs just paying off debt. 
 
If you’re thinking of going down this path, you’ll need to know how to assess and prepare your existing home, gain finance, and find a new home within your budget.
 
 

Your existing home: Is it a rental gem and how to prepare
If you’ve lived in your home for a while, you might be a little out of touch with the rental market. You’ll need to understand your home’s rental potential for starters. The best way to do this is to ask a real estate agent for a written rental estimate. You should also do your own research to understand current rental demand for the area, vacancy rates and get a recommendation for a reputable property manager. 
 
Before you put your house up for rent (or get a revaluation for finance) it’s a good idea to up the ante on maintenance, whether that means clearing up the garden or a new lick of paint. This will help you put your home in the best possible light.
 
Finding your financial sweet spot
The key question here is working out what you can afford. A lender will want to know that you can manage two mortgages on top of your living expenses. It’s important to understand that they won’t factor 100% of your rental income. That’s because you’ll have to pay real estate fees, rates, landlord’s insurance, maintenance and gardening, pest control, utilities, plus factor in a vacancy rate and the cost of reletting your house periodically. 
 
When it comes to what you can borrow, equity is everything. This is the difference between the value of your home, and what you owe. If your home is worth $600,000 and you owe $200,000, your equity is $400,000. This is what the bank will use to determine how much you can borrow, along with your income and debts. At this point, it’s worth shopping around beyond your existing lender to make sure you find the best deal available for your situation.
 
And finally, you can never ignore the tax man. Get advice from an accountant on the tax implications of rental income, negative gearing and capital gains to fully understand your future position.
 
Your second (and new) home 
 
Now to the fun part: your expanding property portfolio. There are many benefits to building a new home vs buying an existing one. First up, maintenance – you won’t know yourself in a new home where maintenance and running costs run lower than an older home. There’s less stamp duty to be paid than if you bought an existing home, and you can choose the design and finishings of your dreams.
 
With a second mortgage, it’s likely that you’ll need to stick to a tight budget. Here are our top tips on keeping your building costs down: 
 
Choose a standard design that offers good value. G.J. Gardner Homes has a range of designs, home and land packages and even opportunities to gain an immediate return from investing in their display homes. 
Make minimal changes. Pick and stick to your house design. Every change you make costs money, so resist the urge to tinker.
Choose sustainable options. A small extra investment upfront can pay dividends in lower running costs later on if you make a conscious choice to build an energy efficient home. 
Talk to your builder and let them know upfront that you’re on a strict budget. They will often have ideas and suggestions you haven’t thought of. 
Go with a reputable builder. We’ve all heard building horror stories and the last thing you need with a second home is unexpected surprises. A national company like G.J. Gardner Homes is a safe bet, especially when you consider that we’ve taken out the Best National Major Home Builder award from ProductReview.com.au for the last two years in a row.
 
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If you’re looking to build an economical second home while renting out your first, talk to G.J. Gardner Homes about our Express range of house designs.

Finding your financial sweet spot
The key question here is working out what you can afford. A lender will want to know that you can manage two mortgages on top of your living expenses. It’s important to understand that they won’t factor 100% of your rental income. That’s because you’ll have to pay real estate fees, rates, landlord’s insurance, maintenance and gardening, pest control, utilities, plus factor in a vacancy rate and the cost of reletting your house periodically. 
 
When it comes to what you can borrow, equity is everything. This is the difference between the value of your home, and what you owe. If your home is worth $600,000 and you owe $200,000, your equity is $400,000. This is what the bank will use to determine how much you can borrow, along with your income and debts. At this point, it’s worth shopping around beyond your existing lender to make sure you find the best deal available for your situation.
 
And finally, you can never ignore the tax man. Get advice from an accountant on the tax implications of rental income, negative gearing and capital gains to fully understand your future position.
 
Your second (and new) home 
Now to the fun part: your expanding property portfolio. There are many benefits to building a new home vs buying an existing one. First up, maintenance – you won’t know yourself in a new home where maintenance and running costs run lower than an older home. There’s less stamp duty to be paid than if you bought an existing home, and you can choose the design and finishings of your dreams.
 
With a second mortgage, it’s likely that you’ll need to stick to a tight budget. Here are our top tips on keeping your building costs down: 
 
  • Choose a standard design that offers good value. G.J. Gardner Homes has a range of designs, home and land packages and even opportunities to gain an immediate return from investing in their display homes. 
  • Make minimal changes. Pick and stick to your house design. Every change you make costs money, so resist the urge to tinker.
  • Choose sustainable options. A small extra investment upfront can pay dividends in lower running costs later on if you make a conscious choice to build an energy efficient home
  • Talk to your builder and let them know upfront that you’re on a strict budget. They will often have ideas and suggestions you haven’t thought of. 
  • Go with a reputable builder. We’ve all heard building horror stories and the last thing you need with a second home is unexpected surprises. A national company like G.J. Gardner Homes is a safe bet, especially when you consider that we’ve taken out the Best National Major Home Builder award from ProductReview.com.au for the last two years in a row.
 
Get in touch today!
 
If you’re looking to build an economical second home while renting out your first, talk to G.J. Gardner Homes about our Express range of house designs.

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