Use A Second Mortgage To Finance Another Property

There are any number of reasons why getting a second mortgage on your home is a good idea. Unfortunately, there are also any number of reasons why it is not a good idea so let’s take a look at the best scenario and hopefully this will be able to give you an outline of when it’s a good idea.

A second mortgage will allow you to release the equity in your home. The general rule of thumb that you need to bear in mind is that if you wish to do this to allow you to invest that money in a way that will grow your wealth over a number of years than this tends to be a good starting point. If you have owned your home for a good number of years and have been making regular mortgage repayments then chances are the deal that you got when you started is not as good as some of the financial loan products that are available today. The market is extremely competitive and therefore mortgage providers are always undercutting one another in terms of the cost to the end-user to be able to get the customers in the first place. The other great advantage you have a in this situation is that because you’ve already paid off a good chunk of your mortgage you have built up the equity in your home and you now maybe in a position to release that.

Probably the best reason to get a second mortgage is to allow you to invest in a second property. In terms of inflation, property almost always beats general standards of inflation and as a result is invariably a good investment. In terms of buying a second property, there are really two areas that you need to look at. The first is capital appreciation and the second is current rent levels. Over an extended period of time what you would like your second property to do is appreciate at least in line with market values and preferably for it to do better than that. The old property adage about location, location, location is very relevant to this and the type of property is also important as well. For example, during a period of time when the property market is not buoyant apartments will be far less attractive and probably far more difficult to sell. On the other hand, even when the property market is not doing that well a house with even a very modest amount of land will tend to do much better.

The other thing that needs to be borne in mind is current rent levels. If you’re going to go down the road of leaving yourself with monthly repayments to buy a second property then it’s very important to be able to assess what type of rent you are likely to get on that property. For example will it meet the new mortgage repayments? Would exceed them or we have to make up the difference yourself? The other aspect of this is that you need to bear in mind how easy the property might be to rent in the first place. There is no point in having a property that should generate a good rental income if it’s extremely difficult to get a good tenant to occupy the property.

Overall, investing in property is one of the best ways to grow your wealth over time. Making sure that you get the right kind of property that will generate a good rental income and will also be easy to get tenants for are fundamental elements in the equation. You need to make sure that you take these into account when deciding to make the plunge. A second mortgage on an existing home where you’ve built up equity is an excellent way to finance this and there is no reason that you cannot look at it in terms of doing this a second or third and building up a property portfolio in that way over a period of time by allowing each property to finance the next.


How to Finance Investment Property

Many people would like to get into the world of real estate investing, but have many questions. While real estate can be a lucrative place to make money, history teaches us that it is also a place to go bankrupt. One of the most key questions that must be answered before entering into an investment property is, “how will I finance this property?”

Should I Finance At All?

Many people decide not to invest in real estate until they have considerable savings with which to do so. This leads them to question whether they should finance at all. While exposure to leverage can be dangerous, it is usually a necessary component to make real estate investing work. Real estate investing is keyed around appreciation and if an asset is appreciating, you would like to obtain it for as little cash as possible. If your property isn’t appreciating, then you have entered into a bad investment to begin with.

Seller Financing

Almost all bold claims about making a fortune in the real estate market are predicated on the notion of “seller financing.” In this model, the person who sells you their property accepts a small or no down-payment and allows you to make your monthly payments to them. This of course would be a great bargain, but it is very rare in the real world. While some people may be looking for an investment opportunity when leaving their house, most would rather put their equity into a more secure vehicle than loaning money to a stranger.

Realistic Financing

If you want to run realistic, reproducible financing numbers, it is best to assume you will have to put 20% down on your property. Banking institutions are immediately leery of lending money to real estate investors, but at that rate, even if you default they will probably make their money back. While this won’t allow you to achieve the kind of ludicrous returns many “Investment Programs” claim, it will put you in a leveraged position to make gains in a positive real estate market without over-extending yourself. Managing risk is an important part of any investment strategy.

There are many more considerations when considering investing in real estate. Much care and consideration should be invested before deciding to purchase property. While real estate can be a valuable part of a diversified portfolio, it is not a “get rich quick” scheme and requires careful planning.