Once you have bought your own home the next step in creating wealth and increasing you net worth would be to buy a rental property. The process involves leveraging equity in your own home to get you into the rental property. You can realise the equity in your own home by getting a registered valuation done. You may or may not need to put any deposit down depending on the amount of equity you have.
Split banking is essential for property investors to avoid the trap of having all your eggs in one lenders basket. Quite often clients go back to the same institution that financed their own home to help with their investment purchase. This situation gives the single bank complete control, whereas if you split your lending between two banks you retain control as your risks are spread.
Serviceability of investor loans needs careful consideration. Remember to use net yield and not gross yield when assessing the return on investment from a rental property. Bank criteria typically scales rent at 75%. Interest only loans may be approved for investors, however actual serviceability is tested on a principal and interest basis.
From a tax perspective it is recommended that you focus on repaying debt on your owner occupied home whilst keeping your investment property loans on interest only. It is sensible to repay debt on your own home first, prior to repaying investment property debt as interest paid on your own home is not usually tax deductible. This strategy also helps you conserve your cash flow while you simultaneously benefit from the capital growth in your portfolio.
The RBNZ has now put in place loan to valuation restrictions on bank lending for the purchase of rental properties. This is a prudential macro-economic measure that is likely to be in place for some time.
Should your request fall outside of normal bank LVR lending criteria then we may be in a position to use a non-bank lender to help you achieve your investment goals.
As you mortgage advisor Ranjit will be able to advise you on the best way to proceed for your rental purchase whilst keeping within the regulatory frame work.