Buying multiple investment properties can be your gateway to financial freedom, opening doors to wealth creation and long-term security. From using your equity to choosing the right lender, here are six tips you can follow to buy multiple investment properties.
- Leverage Your Equity
- Increase Your Savings
- Increase Your Borrowing Power
- Choose The Right Lender
- Buy Properties Below Market Value
- Structure Your Loan Properly
1. Leverage Your Equity
You may have enough equity in your home to help you buy several investment properties, provided you know how to access it.
If you’ve owned your home for a few years, then the payments you’ve made on the principal, and any increase in the value of your home, will have built up your equity. You can access the equity and leverage it to buy your next investment property.
To do this, you can either use a home equity loan or a cash-out refinance. Your larger portfolio can then build more equity and boost your rental returns. Remember, however, that there are many things you’ll need to do to be a successful owner of an investment property. Keep your tenants happy. Boost the value of the property through smart renovations, and make sure you get regular property valuations, especially if the market is experiencing a boom. For more on owning an investment property, visit our guide here.
2. Increase Your Savings
Low-deposit and no-deposit investment loans are available. However, lending criteria for them can be strict and most lenders will require equity in an existing property.
So try to save a deposit, as it provides greater security to the lender. Here are some ideas for building up savings:
- If you already own several investment properties, save the excess rental income to fund your next investment property purchase.
- Aim for positive cashflow on your first rental properties, so you can use the excess rental income to fund the purchase of future properties. Use our investment property cashflow calculator to determine whether a particular property or home loan can potentially generate positive cashflow for you.
- Get a side hustle (second job).
3. Increase Your Borrowing Power
Pay close attention to your debts, as excess debt, and certain kinds of debt, will affect your borrowing power. Take these steps:
- Do not take out personal loans, car loans or leases, as they are short-term debt and can greatly reduce your borrowing power.
- Avoid initiating more credit enquiries. For debts that you already have, make sure they’re paid on time and in full. If you are struggling, consider debt consolidation.
- Reduce your credit-card limit and close out cards that are no longer in use.
- Look through your expenses and see if you can justify the amount you’re spending. If not, cut down.
- Some types of expenses are taken on top of normal spending; these often include private school costs, child care, and private health insurance. Reducing these expenses may increase your borrowing power greatly. For example, if your children can stop attending child care – perhaps you have extended family members who can help raise them – this may greatly increase your borrowing power.
Use our borrowing power calculator to compare results from three different lenders.
4. Choose The Right Lender
You might be tempted to stay with the lender who financed your home when looking for an investment loan but this limits your options; other lenders might offer you a better deal or more borrowing capacity. Many also have niche specialisations and great offers on investment loans.
Borrowing From The Same Lender For Your Investment Loan
| Pros | Cons |
|---|---|
| Some lenders might give you an interest-rate discount, particularly if your new loan greatly increases your total amount borrowed. | You’re putting all of your eggs in one basket. If you default, the lender can choose to seize the property with the higher value (which is usually your home). Also, multiple loans with one bank might increase the size of the serviceability buffer applied to your repayments, reducing your borrowing power. |
| It is convenient to access and track all your loan accounts, as internet banking and other facilities are in one place. | The bank might require cross-collateralisation of your loans, which increases your risk. |
The Risk Of Cross-Collateralisation
If you have more than two loans with one lender, it’s likely that your loans are cross-collateralised by default. It’s best not to offer a lender security over more than one property. There are a number of reasons why cross collateralising can be dangerous:
- First, if the investment property falls in value, the lender could force you to sell your home to pay off the debt.
- Second, when you sell the property for capital gains, the lender could use the profit to pay down the debt on your other loans.
- Thirdly, if you wish to refinance one of the properties for example to release equity to do renovations, the lender will need to approve of the transaction otherwise they might not allow the one property to be refinanced alone. This means the bank will likely want to do a new valuation on both properties, and unless they are satisfied with the overall Loan-to-Value Ratio, they might not allow you to refinance or release equity.
Pros And Cons Of Borrowing From A Different Lender
| Pros | Cons |
|---|---|
| You will usually have the control to refinance or sell the property without the bank potentially looking at your other properties. | Your overall interest rate may be higher, as the amount you borrow from each bank will be lower. |
| If you get into cashflow issues with one of the rental properties, only the bank that has security over that property will know about it. | You might face duplicate fees. |
When you diversify where you keep your loans, you’ll have a chance to check out which lenders offer you a deal that favours your investment strategy and maximises your borrowing power.
Non-bank Lenders
There are some trade-offs when you apply with non-bank lenders. Their interest rates are often higher, they have more postcode restrictions on where you can buy a property with their loans, and you may get to borrow only up to 80% of the property value.
At Home Loan Experts, we have over 50 lenders on our panel, including non-banks and specialist lenders. Call us on 1300 889 743 or enquire online for free and we can help you find the right lender.
5. Buy Properties Below Market Value
There are some trade-offs when you apply with non-bank lenders. Their interest rates are often higher, they have more postcode restrictions on where you buy a property with their loans, and you may get to borrow only up to 80% of the property value.
At Home Loan Experts, we have over 50 lenders on our panel, including non-banks and specialist lenders. Call us on 1300 889 743 or enquire online and we can help you find the right lender.
6. Structure Your Loan Properly
There are some trade-offs when you apply with non-bank lenders. Their interest rates are often higher, they have more postcode restrictions on where you buy a property with their loans, and you may get to borrow only up to 80% of the property value.
At Home Loan Experts, we have over 50 lenders on our panel, including non-banks and specialist lenders. Call us on 1300 889 743 or enquire online and we can help you find the right lender.
Benefits of Buying Multiple Rental Properties
Investing in multiple rental properties can open the door to a world of financial benefits. Let’s take a closer look at how expanding your property portfolio can help you build lasting wealth.
- Diversified Income Streams
Owning several rental properties means you’re not putting all your eggs in one basket. If one property experiences a vacancy, your other properties continue generating income, which ensures a steady cashflow. This diversification helps you manage risk and reduces the impact of any single property underperforming. - Capital Growth Potential
By spreading your properties across different locations, you can tap into the growth potential of multiple markets. Investing in high-growth areas allows you to benefit from appreciation across regions. As one market slows, another might be rising, giving you a balanced approach to long-term capital growth. - Tax Advantages
Tax benefits are a big plus for a property investor. You can claim deductions on expenses like mortgage interest, repairs, maintenance and depreciation. With negative gearing benefits, if your property expenses exceed your rental income, you can reduce your taxable income, allowing you to reinvest your savings into more properties. - Leverage to Expand Your Portfolio
As your properties increase in value, you can tap into the equity to fund more purchases. This strategy, often called the ‘snowball effect’, makes it easier to buy more properties without saving huge deposits each time. It’s a powerful way to grow your portfolio faster - Long-term Financial Security
Multiple properties don’t just bring in rental income – they can also appreciate over time. This combination helps you build long-term financial security. Eventually, the income you generate could even support early retirement, giving you more flexibility and freedom down the road.
We Can Help You Buy Multiple Investment Properties!
A combination of the methods above will help you finance multiple investment properties so you can build a property portfolio.
Discuss these options with a mortgage broker today! Call us on 1300 889 743 or complete our free online assessment form.