Question from Lydia updated on 26th August 2013:
Currently we have one investment property that is soon to be on an interest only mortgage. We also have our own property that is soon to be on a 13-year term. We have 14% overall equity and if we purchase another property we will drop by 1% to 2%. In a year's time, with the new investment property and reduced mortgage loan we will increase to 15%. If we don’t buy then we could increase to 17%. Is this too risky to buy another property now? Do we wait? We are young with the hope to have a family soon and as much as we want to start building our portfolio/investments we want to be smart about it too.
Our expert Kris Pedersen responded:
A good question and one that I really would need more information on to give an answer too, however I will make a few points. Firstly, in purchasing an additional property you would be at a level that is normally seen as being a bit risky. You want to consider how you would cope if there was a job loss and also budget for interest rate rises. Second, you don't mention where you are living and looking to purchase. Obviously the Auckland market has a lot of heat at the moment and most economists are predicting further rises over the next 12 to 24 months. Where this is good is it means this market is more liquid in case you needed to sell and also you are likely to get some equity gains which would reduce your LVR and give you more of a safety buffer. If you are in a small town which is not experiencing growth be a bit more careful as it may be harder to offload if you need to. Thirdly, have a good think about your interest rate strategy. Fixing can give you certainty around your cashflow, but if you push yourself too tight and need to sell for any reason you are likely to incur break fees.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz