How to get multiple mortgages for investment properties

Investing in real estate can let you benefit from rental income today and potentially capital gains in the future if your investment property’s value increases. The more investment properties you add to your portfolio, the more of these benefits you could potentially enjoy.

But because property investment is a substantial purchase, you’ll likely need help from a mortgage lender to build your portfolio. And taking out multiple mortgages for investment properties may not be as straightforward as applying for a typical home loan.

How many investment mortgages can I have?

There is no fixed limit on the number of mortgages that you can take out to invest in real estate, as long as you can fulfil the lender’s requirements for each loan application. This means the number of mortgages you can have will depend on your financial situation. 

Each time you apply to borrow money for a property investment, the lender will look at your income, expenses, and current level of debt to ensure you can comfortably service the loan repayments without overextending yourself or risking financial stress.

It’s also worth remembering that your mortgages and other credit products are recorded in your credit file, which is used to generate your credit score. This could also affect a lender’s decision about whether to approve your investment loan application, as well as your applications for any other credit products, such as car loans or credit cards.

Options for investing in multiple properties

Apply for separate investment home loans

Applying for an investment loan is a relatively straightforward process - you bring details of the property, your saved deposit, your income, and your expenses to a lender, and wait for them to assess your application and approve or reject your loan. 

You’ll then repay the money you’ve borrowed, plus interest, in instalments over a pre-set loan term. The lower your interest rate, the less your loan may cost you in total. You may be able to opt for an interest-only loan for your investment property, where the initial repayments are lower. But bear in mind that you’ll need to be prepared for considerably higher repayments after the interest-only period ends.

While it’s possible to simply apply for a second investor mortgage to purchase a second investment property, this may not be as simple as applying for your first investment home loan.

The lender will want to be confident you can afford the repayments on the second mortgage using the income earned from your job. Rental income for your investments may be also considered, along with other sources, but regular and consistent payslips are what most lenders will want to see.

You’ll also need to save up and pay a deposit on the second investment property, which could be a significant sum. You may be able to apply with a smaller deposit, but this could mean paying more in Lenders Mortgage Insurance (LMI) charges. 

Access your equity

You may be able to use the equity you’ve built up in your first investment property to help you purchase a second, with this equity substituting for a deposit on the property.

Your equity is the current value of your property, minus the principal amount still owing on your mortgage. Your equity can increase when you make principal and interest repayments or extra repayments, or when your property experiences capital growth over time.

If you plan to access your equity to buy an investment property, remember that your lender will likely want to keep at least part of your property “unencumbered” and maintain a Loan to Value Ratio (LVR) of 80% or less. So, to find your usable equity, take 80% of your property’s current value and subtract what’s still owing on your mortgage.

For example, imagine you owned a property valued at $1 million and owed $500,000 on the mortgage. This would give you an LVR of 50% and $500,000 in equity. However, your usable equity would only be $300,000 (80% of $1 million is $800,000, minus your $500,000 principal).

You may be able to use this usable equity in place of a 20 per cent deposit on another property, though you’d still have to cover the cost of a stamp duty and other upfront fees and charges. Another option is using a “rule of four” and purchasing a property for four times your usable equity, so you can not only cover the deposit but the upfront costs.

Some investors build a property portfolio by using the equity in each property to secure the mortgage on the next, rather than saving up new deposits. Of course, you’ll still need to show that you can afford the repayments on your income and expenses, and there’s a risk that if you can’t afford repayments on one property, you could potentially risk losing the whole portfolio. 

Cross collateralisation

An alternative way to access your equity, this involves having a single loan secured by more than one property. This could potentially allow you to purchase more properties while minimising your LVR.

To follow up a previous example, imagine you owned a property valued at $1 million and owed $500,000 on the mortgage, giving you an LVR of 50%, $500,000 in equity, and $300,000 in usable equity.

Using a home equity loan, you could potentially use your $300,000 in usable equity to apply for a second mortgage and purchase a property valued up to $1.5 million. Of course, you’d then have two loans to pay, and a total debt of $1.7 million.

Through cross collateralisation, you could refinance your current mortgage and extend the loan to buy a property worth $500,000. This would mean you’d owe $1 million to your lender for the two properties, and still hold $500,000 in equity, so your LVR would remain a manageable 67%.

As the equity in both properties increases over time, you could potentially use this combined equity to further extend your loan and purchase more investment properties.

Keep in mind that this can be a risky strategy as because the loan is secured by multiple properties, it may be hard to sell one property or make changes if your circumstances were to suddenly change.  

Remember exposure limits

However you plan to start building your investment property portfolio, if you’re applying for your second investment mortgage with the same lender as your first, you may find that they’re reluctant to lend you more money.

Most lenders set maximum “exposure limits” to help manage their risk of financial losses if a borrower’s financial situation changes and they can no longer afford their loan repayments. For example, if you were to lose your job, you may end up defaulting on two loans with the same lender, rather than just the one. 

For example, imagine you previously took out a loan to buy a $1.5 million home, and now want to invest in a property worth $1 million. But the lender you approach may have a debt exposure limit of $2 million, which effectively means you can only borrow $500,000 depending on your current loan balances.

What may be the right choice for you

The ideal way to start investing in property and building your portfolio may vary depending on your financial situation, your personal goals, and the current market. A mortgage broker may be able to help you crunch the numbers and get in touch with lenders that are best suited to assist you take the next steps on your property investment journey. 

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