Can You Afford an Investment Property?

An investment property can be a tempting proposition to a budding investor. It’s one of the most stable and straightforward investments you can make and the opportunity for passive income from rent exists. The downside is that not everyone can afford an investment property because of the massive amount of money required for the deposit and monthly loan repayments. Here are some of the factors that need to be considered when determining if you can afford an investment property.

Identify your priorities

You need to know before you purchase the property of how it’s going to impact your budget and financial goals. You may have to make sacrifices in other areas in order to afford an investment property. If this is a problem for you then you may need to rethink your priorities before you consider yourself able and ready to afford an investment property

Determine how much you need for a deposit

Ideally, you want to save at least 20% of the property’s value as most lenders won’t allow you to borrow more than 80% of the property’s value unless you pay for lenders’ mortgage insurance. When you’re already taking on a massive investment, you don’t want to pay for unnecessary insurance too. Being able to afford a 20% deposit is a big factor in being able to afford an investment property.

Compare homes across different areas

While you may not be able to afford an investment property in your State, it is possible you may be able to afford one in another State where prices are significantly cheaper. Therefore, it’s worth considering the house prices across the country before deciding if you can afford an investment property or not.

There are a number of factors that need to be carefully considered to determine the affordability of an investment property.

If you would like to learn more about investment properties and whether you can afford one, contact us today.