Here are some tips you can follow to buy your first investment property and remember, the sooner you start, the longer you have for your portfolio to increase in value and produce an income for you.
Ensure Lenders See You As A Good Prospect
The first hurdle that low income property investors need to overcome is obtaining approval for a mortgage. How much you earn will determine how much you can borrow and whether lenders will look at you favourably.
Here are some things you can do to make lenders see you as a good prospect for a loan.
- Make Sure Your Credit Report Is Favourable By Paying All Debts On Time
It’s vitally important that your credit report is squeaky clean before applying for any type of property loan. You can get a copy of your credit report from a credit reporting body such as Equifax (formerly known as Veda), Dun & Bradstreet or Experian.
Once you have a copy of your credit report, make sure you look at carefully to ensure that there are no mistakes on it. If you do find something that doesn’t look right, have it rectified immediately.
Also make sure that you pay all your bills and debts on time and that you do not default on any regular payments that you need to make. Remember, keeping your credit report clean will go a long way to helping you to obtain finance for your first investment property.
2. Pay Off Your Current Debts As Fast As Possible
If you have current debts such as a car loan or credit card balance, try to pay them off as quickly as you possibly can. Any potential lender will take these debts into account when assessing the amount you can borrow.
Having current debts can also make or break your ability to obtain finance for your investment property. If you have more than one long term debt, try to pay off the higher debt first by making extra payments whenever you can. This will help to eliminate the debt much faster.
One thing you can do is set up a spreadsheet which lists your debts and also the payments that you make with a remaining balance which updates every time you make a payment. This is a great way to have a clear picture of how much you owe and also very motivating as you see your balance go down.
3. Avoid Spending On Things You Don’t Actually Need
Take a close look at what you’re currently spending and be ruthless about cutting out unnecessary purchases, especially large ticket items. Find other ways to cut your spending by looking at better options for your utility bills and phone and internet plans.
A great way to check your spending is to keep a daily diary where you note down the amount you’ve spent every time you open your wallet or purse. By carefully looking at your spending habits you should be able to eliminate unnecessary purchases to help you save more.
4. Increase Your Savings Regularly
One thing that any prospective lender wants to see is a regular record of your savings. Plus you will need a good deposit if you’re on a low income. Open a separate high interest savings account just for saving for that deposit.
Make sure that you add to this account as much as you can, even if it’s just a small amount every week. As you reduce your current debts or even increase your income, you can always increase your regular savings.
5. Get A Second Job Or Side Income To Increase Your Savings
If you have some spare time on your hands, why not consider getting a second job to earn a side income which you can add to your savings. There are so many opportunities nowadays with the internet and on demand service apps like Uber, that it’s easy to make some extra money on the side.
Just do a Google search on side gigs or on demand service jobs and you’ll find heaps of things that you can do to earn some extra cash.
6. See If You Can Enlist A Family Member To Be A Guarantor For You
If your parents or other relatives are willing to guarantor for you, then you’ll find it much easier to obtain finance for your first investment property. Bear in mind though, that if you default on the loan a guarantor will be liable for the outstanding amount so this should be carefully considered by all parties involved.
7. Consider Buying Your First Property As A Joint Venture
You could also consider enlisting a family member or close friend who you trust to be your joint venture partner. The idea is that you purchase the property jointly with your partner and in this case the prospective lender will take into account the income of both parties.
This may be a great way for both of you to start your property portfolio. Do make sure that you have a proper partnership contract drawn up which outlines what happens in the case one of you wants to sell their share.
Have A Plan
As you can see, it’s not as hard as you might think to get into property investing even if you’re on a low income. The most important thing is to have a plan and then implement it.
For instance, if you need a deposit of say $30,000 and you want to buy your first property in 3 year’s time, then work out how much you need to save every week to reach this goal.
So $30,000 divided by 3 years is $10,000 per year. Now divide that $10,000 by 52 (weeks in a year) and you’ll know that you need to save around $192 per week to achieve your goal.
Most importantly, educate yourself as much as you can about property investing while you’re still busy saving that deposit. Read a lot of books by either visiting your local library or second hand book shops.
Then, by the time you’re ready to buy, you’ll make the best decision possible about the first property you’re going to invest in.