Investing In Property
For those looking to grow their wealth through property investment in a city like Brisbane, taking out a loan could very well be just the thing you need to help you get started. However, times have changed and taking out a property investment loan today is a very different process to what it was in the past.
There are many new risks associated with investment loans which require investors to complete thorough research upfront. Our Investment Finance Centre specialises in assisting people like yourself to ensure you avoid these risks and pitfalls and to make the most informed buying decisions you can.
We have a wealth of information available online though if you prefer chatting to someone over the phone or in person about your plans, contact us at any time.
What is an investment loan?
An investment home loan is a type of loan that can be taken out for the purpose of purchasing an investment property. It is a mortgage solution for people who are considering buying a house they intend on renting out or a property from which they would like to receive income. If you can’t afford to buy the property outright, taking out a loan can help you get your foot in the door.
Such loans have key differences to standard home loans including:
Stricter eligibility requirements
Higher loan-to-value ratios (LVR), meaning you’ll need to raise a larger deposit
Slightly higher interest rates on average
Expenses made on an investment property can be claimed as tax deductions
You will be subject to capital gains tax if you intend on selling the property
Tax deductions you can claim on an investment property include:
The interest on the investment loan
Insurances:
Home and contents insurance
Landlord insurance
Commission paid to real estate agents
Maintenance costs and council rates
The declining value of depreciating assets
Construction costs or capital works
Travel costs associated when you travel to the property to do an inspection, maintenance or repairs
How can I get a loan for property investment?
Over the years, there have been a number of restrictions added which affect who can take out investment home loans. It is, now more than ever, important for you to ensure you’ve done your homework and know your capacity for borrowing upfront.
At Time Home Loans, we help all the investors who work with us understand what different lenders look for before approving a loan. You need to know the area you’re seeking to buy the property, how this will impact your loan and any council restrictions that will apply.
If you’ve got your eye on your next investment property or if you are thinking of getting started with investing, we can help. Our process ensures you will be buyer ready when the right time comes for you to enter into purchasing negotiations and loan approvals.
Establish where you are seeking to buy
Look at restrictions lenders have for those areas
Consider postcode or council restrictions that may apply and affect investment capacity
Develop a proposition indicating which lenders would be the best to consider for the property in your chosen area.
How can I avoid the risks associated with taking out a loan for investing?
As with all our clients, we are committed to our client care process which helps you consider the best financial decision for your situation. In the case of taking out an investment loan, we’ll help you sidestep common pitfalls by ensuring your investment property:
Increases in value
Is structurally sound
Has no building or pest issues
Is within your borrowing capacity
Prevention is better than cure when it comes to mitigating financial risks. That’s why our team is renowned for doing our homework upfront and ensuing our clients are beyond ready when the time comes to apply for a loan.
What to look for in an investment loan
Different lenders offer different terms on their loans. Some will be more favourable to you than others. Things to consider when comparing loans available to you include:
Extra features like offset accounts and redraw facilities
Security and guarantee requirements
Ability to pay off the mortgage faster
Ability to make additional payments, or a top up facility
Security and guarantee requirements
Fixed rate, variable rate or split rate loan options
The feature to transfer the loan from one property to another
You’ll also want to explore the associated fees and costs with the loan as these are typically higher for investment loans than they are for residential home loans:
Loan establishment fees: One-off payment charged at the start of the loan
Lender’s Mortgage Insurance (LMI): Insures the lender against the possibility you might default on the loan repayments
Ongoing fees: Any fees charged on a monthly or yearly basis including admin or service costs
Discharge fees: charged when you pay out the loan in full. Also known as a termination or settlement fee
Early exit fee: If you pay out your loan in full before a certain time frame you may be subject to paying an exit fee
Break fee: A fee charged if you change your loan structure from a fixed rate loan to another loan before the fixed rate period ends
Investing in property
Research and having the right people to help you are the keys when investing in property.
It definitely pays to do your homework on the property market before you dive in, and we’re thrilled to be on board to help you when it comes to financing your decision. Recent share market slides, tight rental markets in most capital cities and a whiff of increase in property prices are seeing many mum and dad investors retreat to bricks and mortar.
Generally, property in Australia is still considered to be a sound investment due to steady and consistent increases over time.
But it’s not a quick win. Property usually has a seven to ten year cycle, with highs, lows and steady stints in between.
Fortunately, an ongoing housing shortage in Australia and a tax system that allows negative gearing on property (where any investment losses can be claimed as tax deductions) continue to favour housing as a solid, long-term investment.
But credit has tightened in the wake of the Global Financial Crisis so lenders are more cautious about who borrows and for what. We are here to help find the right lender and loan for your circumstances in this new environment. We can also wade through the many investment loan options on offer, leaving you more time to find the ideal property.
The Right Property
Here are some tips to help you find the right rental and reap the most rewards.
Unit or house?
House prices often increase in bigger strides than units, offering more potential for capital gain over time. But a rental home also comes with added responsibilities, including gardens and lawns (and sometimes a pool) to maintain.
A unit or townhouse may not increase in value as quickly, but they are generally easier to maintain and may even be easier to rent for that very reason, depending on location, condition and size.
Location, location, location
Of course, you’ve heard this before. But location can mean different things when it comes to rental properties. Renters are often looking for maximum convenience so consider properties near schools, major shopping centres and public transport.
Spend plenty of time researching target areas, including recent property price movements and future predictions, rental vacancy rates and any proposed infrastructure improvements. You should also do some scouting as if you were a renter to get a first-hand look at the local market.
Remove the emotion
One of the worst mistakes you can make with any investment is to buy with your heart instead of your head. Remember, your rental property is not your ‘home sweet home’.
A well-presented property is desirable, but think sensible, not swank.
Ideally, you want a neutral interior colour scheme, serviceable and resilient flooring and window coverings, a low-maintenance yard and good storage. And if buying an older style unit, look for one with an internal laundry, a garage or car space and few stairs (unless there’s a great view to be had higher up, which can add to the property value).
Don’t forget the extras
An investment property requires regular financial commitment beyond the loan repayments. Make sure you have the capacity to cover land and water rates and any maintenance and repair costs. Tenants are entitled to repairs or replacements as quickly as possible under their rental agreement, so you will need to have the means to pay.
Apartments or units also come with body corporate fees, which can run to thousands in some modern complexes with professional landscaping and shared amenities, such as swimming pools
Cover your investment
Make sure you take out landlord’s insurance. This will cover you for damage caused by a tenant and unpaid rent if a tenant skips out, in addition to other standard risks, such as a house fire or a storm.
If you invest in a strata title property, make sure the body corporate has sufficient building insurance to cover the cost of rebuilding the complex in today’s prices. It’s often hard to work out what you need to cover versus what the body corporate covers. A good rule of thumb is everything from the wall paint inward is yours and everything outside of that is covered by the body corporate.
Any interest?
Many property investors take advantage of interest-only loans because interest payments are tax deductible. That means you’re taking a punt that the property’s value will increase over time, leaving you with a financial gain in the long run.
This is a good strategy for high income earners who are taking advantage of negative gearing. If you choose to positive gear your investment (i.e. generate a profit from the rental income after costs), you might want to consider a principal and interest loan and use the profit to shave off the principal.
Just remember, you will pay tax on any income from your investment. Talk to your accountant about your tax situation so your broker can find the right loan