For those who purchased their first home in recent years, it could be a case of 'no better time than now' to consider taking their first steps into property investment.
According to Smartline Personal Mortgage Advisers, many who bought into the property market in the past five years or so and have built up substantial equity in their home may now be well placed to purchase a second property.
This – coupled with flat property prices, a buyers market nationally and increasing rental returns – could put many people in the 'box seat', according to Smartline managing director Chris Acret.
"It could be that the first homebuyers of recent years are now well placed to become the first investment property buyers of 2011," he says.
"These are the people that bought within their means, have been working hard to pay down their mortgage and who have benefitted from steady increases in property values over the ensuing years and, as a result, now have access to significant equity."
As an example, a property purchased for $300,000 five years ago would conservatively be worth around $400,000 now (assuming an annual increase in value of five to seven per cent). The couple that bought this property paid a 10 per cent deposit and took out a home loan for $270,000.
After five years of repayments, the loan balance is now $245,000. With their lender allowing them to borrow up to 90 per cent of their property's value, they now have access to over $100,000 of equity.
They decide to purchase a second property – their first investment property – worth $400,000. They add approximately 7 per cent of the home's value to fund fees and charges meaning they require $428,000 to fund the purchase.
Assuming they take out a loan for 90 per cent of the property's value, the loan amount will be $360,000 requiring them to fund the shortfall of $68,000 against the available equity of $100,000 in their home, which they can do comfortably.
Read more at apimagazine.com.au
