One of the first questions a potential property investor needs to ask is: ‘What is my financial capacity and how much money am I able and willing to invest in the market?’
A property investor’s financial capacity is determined by a combination of two factors. Firstly, how much capital of their own they are willing to commit to property investment. Secondly, how much borrowed capital they have access to. This second point needs to be the lesser of the amount they qualify to borrow or the amount they believe they can afford to borrow. Frequently, property investors either qualify to borrow more money than they believe they can afford or they believe they can service loans greater than what a lender will lend them.
Where property is concerned, an investor’s capital may be represented by property equity and the amount of funds they are willing to invest into the market may be dictated by their borrowing capacity.
As property is willingly accepted by most lenders as collateral for borrowing and the loan to valuation ratios allowed are considerably higher than most other investments, it is very common for property investors to use the equity in their property to invest and provide the investment property as security for these borrowings.
Borrowing costs and the interest on any loans to invest in income producing assets is tax deductible. This adds to the attraction of property investment.