Looking to purchase an investment property but not sure what incentives are available to you? It could be possible to leverage a limited guarantor as we explore in this article.
While first home buyers are incentivized to launch into the property market, fewer stimulus or incentive offers exist for investors.
In my opinion, at times investing can make more sense in the lens of wealth creation, for example – if you live and work in an area where owning your own home is unaffordable. This holds particularly true for first home buyers, who are attracted to inner-city or eastern suburb areas which typically have a higher price tag. For these people, an alternative strategy might look like renting where you want to live and investing wisely elsewhere.
But the entry hurdles are higher, with no aid to cover stamp duty, and lending limits often lower – what strategy could you use to step into your first investment?
A parental guarantee may be an option. While these are designed to aid you in the purchase of your first home – home being the place you live in – it isn’t impossible to use them to buy your first investment property.
A parental guarantee is a structure offered where your parents offer a property of theirs as additional security to cover off the gap between your current savings and 80% of the value of your proposed purchase.
It must be noted – it does nothing for affordability – that is an entirely different question. The parental guarantee only addresses a savings or equity shortfall. This is provided by a mortgage so is not entered into lightly – but can also be released when the investment has sufficient equity to be refinanced out or stand on its own.
A good guarantee structure – and they are not all the same – will;
This type of guarantee may also be available for those buying a home to live in who already hold an investment, but there isn’t enough equity in the property to aid the home purchase. Again, these are not intended to risk your parents property in order to assist you to build your empire, but a sensible approach can be taken in cases where it makes sense to use a guarantee, and for a lot of borrowers saving and paying rent may just be too hard.
The good news is, a lot of parents are very glad to help, perhaps they really, really want their spare room back?
This article was reviewed by our Content Producer Isabella Shoard and Content Producer Marissa Hayden before it was updated, as part of our fact-checking process.
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