Buying an investment property is about creating wealth, so you’ll need to leave your emotions out of the decision making process, Much of the research you will need to do is similar to buying your own home. Also consider factors like:
- How easy is it to maintain?
- What can you afford?
- What type of rent do you expect to charge?
- What is the rental history of the area like?
- What capital growth is the property likely to achieve?
Are you buying an investment property?
A variety of lenders offer investment property loans but they may not all fit your specific investment goals and risk profile.
By gearing your property portfolio with the right loans you can maximise your borrowing capacity, extend your interest only periods and reduce the size of your deposits.
This means that you can buy more investment properties and achieve your investment goals faster!
What is negative gearing?
Negative gearing is when you borrow to invest then, at the end of the year, your interest and running costs add up to more than your investment income. Effectively, you make a loss.
The aim of this strategy is to benefit from getting into the market early and over time, increasing your investment income to cover your expenses.
In the meantime, you are normally permitted to claim the net loss as a tax deduction against your other income.
For investors with a high taxable income this strategy works well as the capital gains and tax benefits usually outweigh the holding costs.
If you are on a lower income however, then another strategy may suit you better.
Always seek independent financial advice when deciding on an investment strategy.
Advantages of investing in property
Investing in property has a variety of benefits including providing security and potentially producing greater returns than other forms of investment.
Some notable advantages include:
- Secure investment: Although the stock market produces financial benefits for investors, there is a higher risk involved. Property investors, on the other hand, are likely to experience more fixed returns on their investments.
- Constant returns: The rental yields from investment properties can produce an ongoing source of income for investors. Where these yields are more than the mortgage repayments, the property may effectively be paying itself off. You may also have surplus left over to cover the additional costs associated with property ownership.
- Growth: The price of your property can rise substantially especially if you buy in a good location. Where you adopt a strategy for long term growth, you will most likely reap the benefits in the following years. Australian property prices also rise above inflation, on average, by 2%.
- Tax reductions: Any expenditure on the property may be subject to attractive tax deductions. Property owners can commonly claim on things such as maintenance, rates and insurance..Higher borrowing capacity: When buying an investment property you may be entitled to borrow up to 90% or 95% LVR. Although you may have to pay lenders mortgage insurance (LMI), this can also be covered in the amount that you borrow.
Once you own the property you will be required to pay a variety of fees while other additional costs may also arise:
- Rates: where you buy a residential property and let it out, you may be required to pay all council rates such as the water bill, as well as any other taxes.
- Maintenance costs: you must cover the cost of any repairs associated with the property, replacements and regular property services such as pest control, plumbing and other facets of the property that require attention. Maintenance on a property is tax deductible but anything that aesthetically improves the property, such as paint or new fittings etc, may not be considered maintenance and as such, you will not receive any tax benefits.
- Levies: where you buy strata title or invest in an apartment, you may have to pay fees to the body corporate who uses these funds to cover the cost of repairs and maintenance in the building.Insurance: you may need to insure the property against any risk of damage to the property itself, as well as fixtures and other contents.
- Interest: as well as the principle repayment amount, interest on the loan can be quite high. Although rental income may cover the monthly loan repayments, this may be before interest is calculated into the amount.
- Agents: if you have an agent who is managing the property, you will also be required to pay any charges and fees to them for overseeing your property.
Consider the establishment costs and other ongoing costs of property ownership, when deciding whether to invest.
You should have a plan and a budget and make sure that you discuss this with a financial planner.
They can help you assess whether you will have the funds to cover the costs of investment property ownership.
How can I borrow 100% for an investment property?
There are only two ways you can get approval for a 100% investment property loan:
- Investment guarantor loan:If your parents can guarantee your loan using their property as security then you can borrow 105% of the purchase price and pay no
- Using another property as security:If you own another property then you can use the equity in that property as a deposit for your next investment purchase. Effectively you can borrow 100% or 105% of the purchase price.
If you don’t have a guarantor or don’t have equity in another property, then you can only borrow a maximum of 95% of the property value.
Do you need help getting approval for a 100% investment loan?
Investing in shares or a business
Yes, you can release equity from your current properties to invest in pretty much anything! Shares, business, options, bonds and anything else that banks would consider to be a worthy investment.
Did you know that a residential secured investment loan is cheaper than a margin loan?
By using your home or investment property as security you can avoid margin calls and save on interest!
Some banks have restrictive cash out policies that may limit your share market investing.
Contact Solution Home Loans today, for a free financial health check.