Do You Know What Your Budget Is?

The property hunt can be a very exciting time for many people. It's a time full of excitement, nerves, and hope.

However, for some people, this can be a draining experience because there are so many options out there and it's hard to know what the best option is for you.

Having a firm understanding of your budget allows you to streamline your search for your next property without the hassle of wasting your time on properties that fall outside what you can afford.

Going to a bank/broker to get a pre-approval is the best way of knowing exactly how much lending you can get, but this isn't practical if you just want to get a quick assessment done because the turnaround time at the bank can be upwards of 10-working days.

So, to get a quick assessment of your budget, you have to crunch some numbers...

Bank lending policy is always changing and how they assess your income etc. has a huge impact on your affordability. In saying that, with the current implementation of debt-to-income ratios, we can gauge roughly how the banks will assess your financials.

The formula is simple

((Income + Proposed Rental Income) x DTI) - Existing Mortgage = Estimated Budget

To calculate your budget, all you need to know is the figures above. To further clarify what they all mean, here's some more information:

- "Income" is the annual gross household income of the investor(s)

- "Proposed Rental Income" is the rental income you expect to receive once you tenant the new property

- "DTI" is the imposed debt-to-income ratio

- "Existing Mortgage" is the mortgage you currently have outstanding (if any)

Let's work out the budget of a homeowner looking to buy their first investment property. Here are the assumptions:

• Household gross annual income of $160,000

• The proposed rental income is $25,000 per year

• A debt-to-income ratio of 6 is imposed

• They have a $400,000 existing mortgage

In this case, the buying power for this investor is approximately $710,000

How did we get to this figure?

((160,000 + 25,000) x 6) - 400,000 = $710,000

When the time comes to secure lending you will need to input your numbers into a bank servicing calculator and depending on the level of expenditure you have, outstanding personal loans, children, number of vehicles, etc., your specific budget figure will change, but the result should be a number that is ballpark to what you calculated.

Remember, the best investment is the one you can get lending for.

Investors who are aware of this and aim within their means are the ones who are able to capitalize on the best opportunities as they appear because they have set themselves a target and can jump on anything within that bracket.

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What do we do?

We help Kiwis build wealth through property investment. Our advisors will take the time to understand your individual needs and recommend suitable investment properties to help you build wealth and set up your retirement.

What does this look like?

We use a 3-step process:

1. We start with a Discovery Meeting where we learn about you, your goals, etc. and you learn more about us.
   

2. This is followed by a Strategy Meeting where we model your retirement plan, understand key investment concepts and briefly touch on some investment choices.
   

3. Finally, an Asset Selection Meeting where we discuss investment options in more detail and make any recommendation adjustments based on what we now know about you.

Who are we right for?

We help people with limited knowledge of the property market make smart investment choices and set up their futures. From first-time investors to experienced investors, we can cater to a wide range of people and help set up their futures through research-based property investment.

How much does it cost?

Nothing! We get paid a fee from the developer when a property is transacted so you are getting expert advice at no charge - it's a no-brainer!

How do I start?

Start the process now by booking a time to talk with our advisor by clicking here.