How Many Investment Properties Can I Finance?

Understanding Your Investment Property Financing Options

Investing in property can be a lucrative venture for many Australians. However, one of the most common questions prospective investors ask is, "How many investment properties can I finance?" The answer to this question can be complex, as it depends on various factors, including your financial situation, the type of properties you're interested in, and the lending policies of financial institutions.

This article aims to provide general information only, offering insights into how you can assess your eligibility for financing multiple investment properties.

Key Factors Influencing Your Financing Capacity

1. Income and Employment Stability

Your income is one of the most critical factors lenders consider when determining how much you can borrow. Consistent, stable income from employment, investments, or other sources enhances your borrowing capacity. Here are some key points to consider:

• **Full-time Employment**: This is generally viewed favourably by lenders, as it signifies job security.
• **Part-time Employment or Self-employment**: If you are self-employed, lenders may require two years of tax returns to assess your income.
• **Additional Income Sources**: Income from investments, rental properties, or side businesses can also be included in your financial assessment.

2. Existing Financial Commitments

Lenders will assess your current financial obligations, including:

• **Current Mortgages**: The number of properties you already own and the associated mortgage repayments.
• **Personal Loans and Credit Cards**: Existing debts can impact your borrowing capacity.
• **Living Expenses**: Lenders will often consider your living expenses when calculating how much you can afford.

3. Equity in Existing Properties

Your existing properties can significantly impact your ability to finance further investments. The equity you have built up in your current properties can be leveraged to secure additional finance.

• **Calculating Equity**: Equity is the difference between the current market value of your property and the remaining mortgage balance. For example, if your property is worth $600,000 and you owe $400,000, you have $200,000 in equity.
• **Using Equity**: You may be able to access this equity to fund a deposit on a new investment property. Many lenders allow you to borrow up to 80% of your property's value without requiring lenders mortgage insurance (LMI).

4. Lender Policies and Regulations

Each lender has its own set of policies regarding investment property financing. Factors include:

• **Loan-to-Value Ratio (LVR)**: Most lenders will allow an LVR of up to 80% for investment properties without LMI. If you have a higher LVR, you may need to pay LMI, which can impact your overall borrowing capacity.
• **Serviceability Calculation**: This is how lenders assess your ability to repay the loan. Lenders will often apply a higher interest rate when calculating your repayments, even if your actual loan rate is lower, to ensure you can manage potential interest rate rises.

Strategies for Financing Multiple Properties

1. Build a Strong Financial Profile

To increase your chances of financing multiple properties, focus on improving your financial profile:

• **Increase Your Income**: Consider ways to enhance your earning capacity, such as taking on additional work or improving your skills.
• **Reduce Debt**: Pay down existing debts to improve your debt-to-income ratio.
• **Maintain a Good Credit Score**: A higher credit score can lead to more favourable lending terms.

2. Consider Different Property Types

Different types of investment properties may have varying impacts on your borrowing capacity:

• **Residential Properties**: Generally easier to finance, particularly in stable markets.
• **Commercial Properties**: May require a larger deposit and have different lending criteria.
• **Off-the-plan Purchases**: These can sometimes present more complex financing scenarios, as lenders may have different policies regarding valuation and rental income.

3. Work with a Mortgage Broker

An experienced mortgage broker can help you navigate the complexities of property investment financing. They can provide tailored advice based on your financial situation and help you identify lenders that may offer the best terms for your needs.

FAQs

How Many Investment Properties Can I Own?

The number of investment properties you can own largely depends on your financial situation, including income, existing debts, and equity in current properties. While some investors may finance multiple properties, others may find it more challenging. Consulting with a mortgage broker can provide you with a clearer understanding of your specific circumstances.

Conclusion

Understanding how many investment properties you can finance involves a careful assessment of your financial situation, existing commitments, and lender policies. By building a strong financial profile and leveraging equity, you may enhance your ability to invest in multiple properties.

For personalised advice tailored to your unique circumstances, consider speaking with a mortgage broker. They can provide insights and strategies to help you achieve your investment goals.

*Disclaimer: This article is general information only and should not be considered financial advice. Please consult with a qualified professional for personalised guidance.*