Golden rule of property investing
If you are thinking about investing in property, one of the most important questions to ask is how much you can afford to borrow. If you borrow an amount that is right for you, you could be starting a journey of significantly building your wealth through property investment. If you get it wrong, you could be suffering financially in the long run. Understanding how much you should be borrowing is all about understanding your borrowing power – and it’s more than just how much you earn.
Conservative borrowing estimates
Before delving into the details of borrowing power, it’s important to understand the value of conservative estimates. When you are working out how much you can afford to borrow, there is no winners if you exaggerate your income or omit significant expenses. It’s all about being honest with yourself, making conservative estimates, and understanding how much you are truly able to afford. It’s easy to over-leverage (borrow too much) and come into problems later down the line. For example, if your income levels decreases over the loan term for any reason, you need to know you can still keep up your payments and ultimately keep the property you have worked so hard to own.
Determine your income
First up, you should determine the income of everyone on the home loan. Whether you are buying a property alone or you are with a partner, it’s time to pull together your total income levels. This includes your employment salary – or if you are self-employed, the income you get from working – any rent you receive from current investment properties, income from other investments such as shares, or any other income you are currently enjoying. Once you have gathered all of the information, you can tot up your total. Generally, most lenders will offer between four and five times the amount of your income. At Reventon, we recommend making your calculations based on the lower end of that scale, so you can be sure not to borrow too much.
Determine your expenses
It’s not all about your income – lenders will also look at your regular expenses to ensure that you can keep up with your repayments. This means your current rent or mortgage payments, your transport costs, grocery shop, energy bills, insurance premiums, and so on. Be sure to include everything that is a regular expense each month – even your Netflix account and your morning coffee. You’ll also need to determine your outstanding balances and payments on any credit card or loans, to ensure that you get an accurate picture of your monthly expenses. This part of the process might take a little bit of work in terms of checking your bank accounts and grouping your outgoing costs for the last few months, but it’s an important step so be realistic about how much you are spending.
Use a calculator
To make things a little easier, you might want to use an online calculator to help you discover exactly how much you can borrow. But remember not all calculators are built equally. Reventon has launched a new suite of finance tools that helps you do just that. Take your income and the expenses figure that you just calculated, and visit Reventon’s borrowing power calculator to work out exactly how much you should be borrowing. This is different from a regular bank, who will tell you how much you could borrow in an effort to try and get your custom. But they won’t have your best financial interests at heart. At Reventon, we’ll tell you how much you should borrow, so you can build your wealth securely and safely.
Take the next step
Once you have used Reventon’s calculator, it’s time to get in touch to talk to an adviser about the next steps. One of the Reventon team can go deeper into your current circumstances to determine exactly how much you could borrow, help your source the best property for your investment goals, and guide you through the process of buying your dream property. It starts with one click to book your free consultation today.