15 Things To Consider When Purchasing a Second Home Overseas
Buying a first home is a huge step; you need to consider your finances, your perfect location, the type of home you want, and more! However, if you are an Australian Expat buying a second property overseas, there are more elements you need to consider.
Continue reading for a list of the top 15 things you need to consider when buying a second home overseas.
1. You Need To Know Why You Are Buying A Second Property
The most important consideration you need to make as an expat new home buyer is to know precisely why you’re buying it. When buying a first property, your reasons will likely be simple; you want the perfect home for you and your loved ones.
However, you need to consider your reasons for buying a second home more because they will be more complicated. For example, you need to consider if you want to rent out the property in its current state or renovate it to add value.
Additionally, you need to think about how long you want the property for; you can keep it for a short term or keep it for longer and mark up the price.
2. You Need To Consider Whether A Second Home/ Investment Property Overseas Is A Good Idea
When you buy an investment property, it’s a massive gamble that can either pay off massively or fail and cost you money.
To make sure that the second investment property is a good idea, you need to conduct plenty of research into the property, such as researching the location, the potential performance of the property and more.
You also need to make sure your financial structure is secure enough to buy a new property; if it isn’t, purchasing it is not advisable.
Get a free Australian mortgage assessment today.
3. You Need To Consider How Much Deposit You Will Need
The most crucial financial element to consider is the deposit required for the second home. For most homes in Australia, you need to pay a deposit of at least 10%. However, if you pay a 10% deposit, you will also be subject to Lenders Mortgage Insurance (LMI).
If you want to avoid paying Lenders Mortgage Insurance, you need to pay a deposit of at least 20%.
Another option is using your first home equity to pay off the deposit. However, you can only do this if your first home is old enough. You can work out your first home’s equity by subtracting the mortgage value (what you have left of the mortgage) from your home value.
4. You Need To Find Out If Expats Can Get A Home Investment Loan For A Second Property
Trying to get a second home is pointless if you cannot get a home investment loan. You should research multiple home loan lenders to see if you are eligible (check their home loan policies for the critical information).
Additionally, you can check if the Home Owners Grant applies to your second home loan if you don’t have it on your first home investment loan.
5. You Need To Have A Financial Structure For Your Second Home
Having a sound financial structure before getting a home loan for a second home is essential. You need to discuss your second home with an accountant and make sure you cover the following aspects:
- You need to know how to split your debt between your first and second home. An accountant will help you make a plan to split your debt.
- You need to know how to split ownership of your new home if you want to split it with a family member.
6. You Need To Consider Other Costs For A Second Home
The main cost you must consider when taking out a home loan for a second home is the home loan repayments. You need to know your principal repayments and your interest repayments. You can use our ODINMortgage mortgage repayment calculator to get an accurate idea of your repayments.
Other potential property costs include early repayment fees, redraw fees, new property management fees and more. However, you can also encounter cost savings like specific fee waivers like early repayment fees.
7. You Need To Consider The Property Type
There are multiple property types to consider for a second property, but the main two are houses and apartments. If you purchase a house, it’s usually a more sound investment than an apartment because the land a house comes with heavily increases in value (even when the house depreciates in value).
However, apartments are much cheaper to purchase, and if you get one in a more lucrative location, the value of the apartment can increase after you purchase it.
8. You Must Consider Your Second Home Location
Choosing an area to live in is critical. To help you choose, focus on locations with an excellent selection of shops/restaurants and public transport options.
To make sure you buy in an investable location, choose an area with multiple industries, preferably ones that are growing (avoid places with one industry like mining towns).
9. You Need To Research Property Prices To Find a Fair Price
If you don’t research any nearby homes, the price of the home you want will be whatever the highest bidder pays for it; you don’t want to go into the bidding process with no idea of the property value.
To estimate the value of a property, research nearby homes and find out what they sell for (you can determine the value via the per-square-metre price). Research the per-square-metre price of around ten nearby properties to get the most accurate result.
Get a free Australian mortgage assessment today.
10. You Must Consider The Mortgage Type For Your Second Home
Before buying, you need to consider the mortgage/home loan types. Here are some of the home loan types you should consider:
- Fixed-rate home loans: A fixed-rate home loan is a loan with a fixed interest rate, meaning that you won’t pay more if the interest rates increase.
- Variable-rate home loans: A variable rate home loan is a home with a fluid interest rate, so if the interest rates decrease, you will pay less interest on your repayments.
- Principal and Interest repayments: This is a standard type of loan; you repay part of your mortgage each month (along with interest).
- Interest-only repayments: With an interest-only mortgage, you only pay the interest repayments each month ( you pay the principal fee at the end of the term).
11. If You Want To Rent Out The Property, You Need To Find Its Renting Value
If your goal is to rent out the property, you need to know the rental income and value. If the current owner is already renting out the property, finding its rental value is easy; you need to check the current rental price.
If the home isn’t currently a rental home, finding the rental price can be more challenging. The easiest way to find it is to ask multiple real estate agents to get an average estimate of the renting value.
12. You Need To Find Out If You Can Add Value To Your Second Property
Although you can make money from a second property by renting it in the state you buy it; it’s a brilliant idea to add value so that you can charge more rent.
To add more value to your second property, you can add a new room such as a bedroom or more facilities like toilets and showers.
13. You Need To See If The Location Is Receiving Improvements
The location can be vital for the value of a property; you need to see what the location has on offer to residents to make it a better place to live (public transport, restaurants, shops, etc.).
As well as researching what the location currently has on offer, you also need to look into any improvements the area is receiving, such as new shops, new restaurants or a new entertainment venue (sports venue, cinema, theatre, etc.). These improvements can add value to the location and mark up the future cost of the property.
14. You Must Consider If You Want To Manage The Property Or Hire A Property Manager
Buying a second home to rent out and manage is a huge consideration, so deciding if you want to manage it yourself or hire someone else is essential (it depends on your financial situation).
If you don’t want to manage the property yourself and you want to hire a property manager, you must make sure you account for them in your expenses. Most property managers take a monthly commission of around 7-10%.
Get a free Australian mortgage assessment today.
15. You Must Check The Location To See If It Is Receiving Competitor Rental Options
The final step of your property location research should be to research housing agents to see if there will be any rental competitors in the area. If there is a high density of rental options, you will have to lower your prices to make them more competitive.
Therefore, you ideally need to buy a new home in an area with fewer competitors so you can raise the prices.
By using our top tips for buying a second home, you can make the most intelligent choices to ensure you have a brilliant property in a great location (with a loan with fair repayments).
Frequently Asked Questions
What Property Type Should I Choose For A Second Home Overseas?
Houses and apartments are the main property types you should consider for a second home.
We recommend choosing a house because the land it comes with will increase in value over time; this is the case even if the house itself decreases in value.
However, apartments are cheaper, and if you find an apartment in a fantastic location, its value can increase after the purchase.
What Mortgage Type Should I Choose For A Second Home Overseas?
Here are the second home overseas mortgage types.
- A fixed-rate home loan has a fixed interest rate, even if the rate increases.
- With a variable rate home loan, you pay less interest if the rates decrease.
- For principal and interest repayment loans, you repay some of your mortgage each month with interest.
- An interest-only mortgage is interest-only; you pay the mortgage amount at the end of the term.
Is Buying A Second Home Overseas A Good Idea?
Buying a second home overseas can be a fanatics investment over time, especially if the overseas property is cheaper than a property at home.
However, before you make your decision, you need to consider many variables, such as the location, your financial situation, the mortgage type you want, and more.
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