Investment Property Loans
There are a range of investment property loans and loan features available ranging from simple home loans to more complex loans that allow you to structure your repayments. Go to the residential investment loans page for more information on lines of credit loans and the various interest rate options available.
There are many types of investment properties and many more investment property loan options on offer, as well as gearing options to suit different investment strategies. A loan Market mortgage broker will help you do the sums to determine the best investment loan for your investment strategy.
Investment Property Loans
Investing in property is one of the most popular ways to create wealth and it’s important to plan ahead to ensure you make the most of your assets.
Always seek advice from your accountant on investment and taxation rules for your particular situation. Talking to your accountant will give you the appropriate analysis of your specific financial, investment and taxation situation. This is particularly important when you are considering investment relating to your superannuation.
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Property Investment Using Your Equity
You may be able to start your investment portfolio sooner by using equity in an existing property. There are a number of methods for using the equity in existing properties to help finance your investment property purchase.
First-time investors often use the equity in a principal place of residence (PPR) as additional security for their investment property purchase. This decreases the size of the deposit required.
The use of two or more properties to secure a single loan (in this case the PPR and the investment property) is called cross-collateralisation.
The advantages of cross-collateralisation include:
- Increased borrowing power
- Higher Loan to Value Ratio
- Less paperwork
- Reducedfees & charges
Things to consider before using cross-collateralisation to secure your investment purchase include: if something goes wrong, your lender may have the right to sell whichever property they want to recoup their costs, or even all of the properties securing the loan. It can become quite complicated to sort out your finances should you wish to sell one of the properties securing the loan.
Line of Credit Home Loans
Line of Credit home loans are often used to purchase multiple investment properties. Standard variable or fixed rate loans may also be used.
An alternative to cross-collateralisation is to purchase multiple investment properties using completely separate, stand-alone loans for each property and even different lenders. Instead of using your PPR as security, you instead take out an equity loan against the balance and use this as part of your deposit, or even a second mortgage on the property. These methods are often employed by more experienced investors.
Our brokers are also knowledgeable in the property market so if you have any questions about the buying or selection process, we are here to help with that too.
Financial Considerations When Looking at Investing in Property
Investment property loan decisions are often influenced by whether the borrower has any owner-occupied debt. Owner-occupied debt is usually paid off first to maximise the effectiveness of gearing, while the tax effective debt (investment debt) usually has the minimum repayments possible, often interest only repayments. If there isn’t any owner-occupied debt, then personal circumstance and choice dictates interest only, principal and interest or a combination of the two. Talking to your accountant or financial planner is particularly important when you are planning on making decisions about funding for investment purposes versus owner occupier or personal use.
Finding the Right Investment Property
In order to create wealth through property investment you need to make smart choices on your property purchase. Some rules of thumb for choosing an investment property include:
- It’s all about the location your property should be in an area where it is likely to be well-tenanted and/or experience price growth.
- Investigate infrastructure look for a property which has good roads and public transport in and out of the area, schools, shops cafes and restaurants, and sporting facilities.
- Pick the right style of property target properties that suit the sort of people who live in the area or one that can be renovated to meet the right needs with a minimum outlay. If you’re looking to invest in the inner-city market, search for modern, low-maintenance apartments. Similarly, houses with big yards are suitable when targeting families.
- Do your research good research is the best way to find a bargain.
- Look ahead for any planned developments, upgrades of main streets/shopping districts, recent resource discoveries and suburbs adjoining soon-to-be completed highways, freeways, major roads or improved public transport, all of which make the commute into work more feasible.
Property Investment Golden Rules
Rental returns aren’t the only opportunity to maximise property investments. There are a few golden rules to getting the most out of the borrowing side of your property investments.
- Make sure you review your property investment loans regularly to ensure you are on a competitive rate. Over the course of a long-term property investment plan, the type of loans available and your situation may change dramatically.
- Be disciplined about the kinds of add-ons you pay for with your investment loan.
- Do the math and change loans if there is a long term benefit. Even though there may be costs involved in the start, changing to a more sensible structure or lower interest rate loan may actually save you thousands over a long investment period. With the help of a Loan Market mortgage broker, most of the legwork is done for you.
The extra money you save can help you expand your property portfolio, undertake redevelopment projects, finance renovations on your home, or even top up your superannuation.