9 things to consider when buying your second property

Recently updated on January 11th, 2023 at 11:57 am

Many individuals or small business owners buy a second house as part of their investment or retirement plan in Australia. If this sounds like you, here is an overview of some areas that are worthwhile considering before you take the plunge.

Why do you want a second property?
When you bought your first house, it was most likely because you wanted a home to call your own. How about your second property? What’s your purpose for buying it?A clear understanding of your goals is important because it can help you decide about the type of property you will search for and buy, where to buy and how much you would spend for it.A lot of people purchase a second property as an investment. Though be aware that if this is the case, there are a lot of associated costs, such as leasing fees, maintenance, council rates, etc. Along with a mortgage, these costs need to be offset (or compared) with your return (how much money you’ll make). Similarly, buying a holiday house is another common reason to purchase a second property. Or perhaps you’re upsizing or downsizing? Again, it’s important to balance the costs with the lifestyle benefit.
How much deposit is needed for a second home?
Your deposit (or contribution) to the purchase price of the property you want to buy will determine the kind of loan you can apply for and the amount you can borrow to buy your second property. The size of the deposit varies between lender types (such as whether the lender is a bank, private lender, non-bank lender or fintech). An increasingly popular way to bypass saving for a deposit is to leverage the equity in your first home for a deposit. This financial facility is referred to as a ‘home equity loan.’
Can you afford a second home?
Don’t just look at the cost to purchase the second property: consider all the associated expenses. In addition to the deposit, you should also include other purchasing costs, such as building and inspection fees, stamp duty, legal fees, and other associated charges. It’s also wise to have a buffer in case you need to attend to unexpected maintenance costs – or equally to invest in home improvements once the sale settles.
Are you eligible for a loan?
If you’re not paying for the property outright, it’s good to know what financing options are available. This includes researching the type of lenders, including banks, private lenders, non-bank lenders or fintechs, as well as their loan terms, conditions, and rates.
What type of loan will you get?
Different lenders offer various home loans. In addition to first mortgages, there are also second mortgages, caveat loans and home equity loans. Loans may have variable or fixed interest rates. To know the best type of loan for your needs, consider speaking to lending specialists so you will know your options in detail.
What are the extra costs associated with buying a second property?
Getting a property involves a lot of expenses, such as insurance, maintenance, council rates and property management fees. It’s also common for property owners to invest in new furniture fit-outs, minor home improvements, maintenance and renovations. It’s also wise to consider the tax implications are if you have a second property that’s rented.
Where should you buy your investment?
You know the saying: ‘Location, location, location.’ Though the value of the location is determined by the reason for buying the property, and will change if it’s purely for investment purposes or whether it’s a ‘lifestyle buy’ (i.e. holiday home). Also, consider the amenities, infrastructure (i.e. public transport and access to shops), as well as the general neighbourhood of your desired property.
What are the improvements being done in the area?
Major works in the area you’ve chosen, such as improved public transport, can affect the value of your property. While some can increase your property value, others may decrease it.
What is the property’s rental potential?
If you plan on making your second home a property investment, you should know its rental potential. If it’s an owner-occupied home, you can ask local real estate agents about how much they expect it to rent for.

How does equity work when buying a second home?

Equity is the difference between the current value of your property and how much you still owe on your mortgage. If you have built sufficient equity in your first home, you can often use it as a deposit for the purchase of your second property. This is called mortgage equity withdrawal or a ‘home equity loan.’ In addition, this kind of home loan uses the equity you have in your home to provide funds for various purposes. It also usually has lower interest rates than those of other options like personal loans or credit cards.

Home equity loan to buy the second house

If you have an existing mortgage or own your home outright, you can apply for a short-term home equity loan. Although home equity loans are initially designed for longer periods, many alternative and private lenders in Australia now offer short-term home equity loans. This is particularly ideal for borrowers who may only need funds for a shorter period.

The process of getting a short-term home equity loan is simple. Private lenders like Mango Credit require minimal paperwork, and you can apply online. There is also no credit check or income assessment, and the funding becomes available within 3-5 days upon application.

Selling your first home and buying your second

Are you upsizing or downsizing? Consider a bridging loan to help ‘bridge the gap’ between purchasing your new home and selling your existing one.

Key Takeaway

There are a lot of considerations when buying a second property. Be sure to do your research – a mortgage broker is well placed to support you in this process.

Mango Credit

Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management