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How to invest on a low income?

You don’t need a six-figure salary to start investing in property, for those who earn a relatively low income will require a little bit of more creative thinking to start a portfolio. Below are a few tips to help you get started.

1. Find an investor-friendly loan.

The challenge for low-income earners is saving for a sufficient deposit. Some lenders require a higher deposit for an investor that is required for an owner-occupied so seek out a lender and loan that is investor-friendly or consider living in the property for a period after the purchase before converting it into an investment property as your property value grows.

In any case, having at least 10 per cent of the property’s purchase price as a deposit will not only increase the chance of loan approval, it also increases your borrowing capacity, and it also helps you reduce the amount that you need to pay for the lender’s mortgage insurance.

2. Prove your financial discipline

Your lower income on an application can be offset by proving yourself a low-risk borrower. Having genuine savings will not only prove to the lenders your ability to consistently meet your financial payments and live within your means, but it is also an opportunity to increase your borrowing power.

The same can be said for lowering any existing debts. Such as always keep credit card limits as low as possible as lenders always calculate servicing based on the limit, not the balance.

Also, try to pay off any personal loans or car loans before applying for an investment loan. Because of the short-term nature of these commitments, repayments can have a significant impact on an applicant’s borrowing power and should be paid out where possible.

3. Choose the right property

When it comes to choosing the property, low-income earners will generally do well to steer clear of anything that’s negatively geared, as you are not trying to offset your higher income with losses and remember the importance of profit over the property.

Regional areas are a good entry point to the low-income earner traditionally as the property price in the regional area are lower compared to the area closed to the city such as Melbourne. However, there will generally be less capital growth and higher in rental yields.

4. Seek out different strategies

For those whose don’t have any non-deductible debt they want to pay down first, adopting a principal and interest payment is the obvious choice. Principle and interest payment allow the borrower to reduce the debt over the time and freeing up some borrowing capacity and allowing the borrower to leverage equity.

Or investing with a close friend or relative is another way to enter the market for those who earn a low income. As long as an agreement is in place, including who is responsible for the mortgage and what happened if one borrower defaults, how the property will be used, in what circumstances it may be sold and how maintenance will be paid for.

5. Find the right loan

Some applicants that would not qualify by the major banks would be qualified for a loan through a specialist lender. Specialist or non-conforming loans do carry higher interest than a conventional loan to compensate for the higher risk the lender is taking. This type of loans is usually used as stepping stone to a prime loan, it helps the borrower prove themselves so that they can switch to a prime loan after a year or two.

Property investment may not be as straightforward to low-income earners, but in most cases, it is still accessible, provided the right properties and finance products are chosen. For further insight, please contact Kevin on 0415820016 to find out how he can help you in investing in property.

Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in this newsletter. It contains general information only and has been prepared without considering your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

© Ace Broker. Credit Representative Number 498754 is authorised under Australian Credit Licence Number 389328.

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