Second Home Buyers

You’re considering buying a second home - congratulations!
The next step is to decide whether you are going to sell your existing property first, buy a new one first, or hold onto your existing property as an investment!

Talk to us to find out the best option for you and your property plans! Mortgage Mantra is here to help you make the right decision for your particular requirements backed by up-to-date property market knowledge and broker expertise!

Buy, Sell, or Hold?

There is a lot to consider when buying your second home, it can often feel more complicated than buying your first as there are more factors to weigh up. When choosing to buy a second home, you can choose to buy a new property before selling your first one, sell your first property before buying a second one, or buy a second property but hold onto the first as an investment. Investment properties are usually rented out so that over time, your mortgages are helped by the payments you receive from your tenants who live in your investment property
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    Pros and Cons

    Buying First

    You get the big benefit of buying time to shop around until you find your perfect next property, all at your own leisure. There’s no settlement date on the horizon, and there’s no race against time to just buy any old property that is available. While the benefit of time is a big one, you may be held back by finances. Not many people can afford to put down the deposit on a second home without the sale of the first as their equity is tied up in that existing property.

    There are also insurances to consider, when you own two homes at once, you have twice the insurances to cover to keep both properties protected. This strain on the finances can often encourage sellers to settle quickly on a lower asking price on their existing property in order to get the money without delay. There are pros and cons for buying first, and if you can afford it, it can make shopping for your dream home a much more relaxed search.

    Selling First

    Selling first is a smart and secure way to be able to see exactly how much money you have to play with when considering purchasing your next property. Knowing exactly how much you can afford often settles people’s fears when buying a second property, as you won’t be wasting time looking at the wrong properties that are over (or under) your ideal budget.

    The downside to selling first? The countdown to settlement day

    Once you have accepted a buyer’s offer, the clock starts ticking and you have to start searching for your new home – with a deadline. This pressure on time can force you to put a deposit down on a property that may not quite fit your lifestyle because you don’t want to not have somewhere to live come move-out day. Finding the right home, or a home at all in the competitive market, within the time-frame might not be possible, so you have to consider all possibilities of what you will do in the interim when you are between homes. Can you stay with family or friends? How much will it cost to move and store your belongings until you find a new property? How many months can you afford to store them? All of the potential costs of being in-between houses should be considered to avoid being stuck with a new property that you will already want to sell the moment you move in.

    Holding

    Holding onto your first property while you buy your second, in order to use it as an investment property, can be a smart move (if you can afford the insurances on both houses before you find renters). Renting out a property is a popular investment, but also comes with its share of pros and cons. While it can be a great source of passive income, some rentals can end up being a headache in terms of maintenance, dealing with tenants and sometimes only gaining minimal profit. In saying that, N.Z’s property market historically has enjoyed moderate long-term growth, which means if this continues then you are likely to see gains in your investment property’s value over time.

    So if you did ever want to sell it, it would potentially be growing in value with its costs being mostly covered by renters until the right time when you do choose to sell. Tenants living in your investment property are only obligated to pay rent to you, the landlord, you are in charge of all other costs such as maintenance, rates, council taxes, repairs and of course, the mortgage. To know if holding onto an investment property is worthwhile financially for you, it is helpful to speak with a professional to discuss your options. You have to know your “why” when choosing to hold onto an investment property so that you can make the right decision to best support your future plans

    How much deposit do I need for a second home?Before you start considering buying a second home, now is a good time to get your finances sorted. Knowing exactly how much you are willing, or can afford, to put down as a deposit on a second home is not something that should be guessed.

    How much do I need?

    About 20% of the value of the property. This varies from seller to seller, but generally, that is the suggested ballpark figure. The criteria of a deposit vary between lenders so it is best to ask the specific questions to the lender you are looking to buy from. So if you are looking at a property for $600,000, you’d need to put down a $120,000 deposit to secure it

    Using the Equity from your existing property

    If you are planning on using your equity from your first home as a way to borrow more money to put a deposit down on a second home, you need to understand your borrowing power. As a general rule, you should leave 20% in your property and deem it as unusable. To work out your usable equity, take the value of your house and then multiply it by 0.8, then minus your mortgage. This money can be used as a deposit alongside any other equity and cash.

    Have another question or ready to begin your journey with Mortgage Mantra?

    Request a call back and let’s begin our journey to your first home today.

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