Property investment loans

According to the ABS in 2008, Australians borrowed around $68 billion in investment loans and $225 billion dollars in home loans. Property is considered an excellent method of creating wealth, when used as a long-term investment strategy. Historically, house prices provide a steady return to investors in the form of capital growth as property prices rise. Rental yields are also currently increasing as vacancy rates drop to record or near-record lows across the country. With a range of investment gearing options and loans available, smart property investment can be an ideal wealth creation vehicle.

Find a smart property investment loan

For more information on property investment loans or to find a smart investment loan in your best interest, simply fill in the form below or call us on 13 LOAN (+61 2 9249 3739).

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Property investment loans

There are a range of investment loans and loan features available – ranging from simple home loans to more complex loans that are allow you to manage tax, gearing and repayments. Go to the residential investment loans page for more information on Lines of credit and the various interest rate options available.

Always seek advice from your accountant on investment and taxation rules for your particular situation. While you may read or hear different information, talking to your accountant and or financial planner 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.

Using your equity

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 their principal place of residence (PPR) as additional security for their investment purchase. This increases the amount you can borrow and decreases the size of the deposit you require.

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. Advantages include:

• Increased borrowing power
• Higher Loan to Value Ratio
• Less paperwork
• Only one set of fees & 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; adding additional properties to your portfolio may require revaluations of all existing properties; refinancing can become expensive.

Line of credit home loans are often used by investors to purchase multiple properties, or you may use a standard variable rate or fixed rate home loan.

An alternative to cross-collateralisation is to purchase multiple investment properties using completely separate, stand-alone home 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.

To read more about what home loans are available for investment, read our section on loans for investing.

It’s essential to discuss your investment options with your mortgage broker, accountant and financial planner to ensure you achieve the best possible tax and financial outcome.

Financial considerations when looking at investing in property

Investment 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 investment property include:

• Look for the right 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 includes or has planned 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 for things like 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.

1. Make sure you review your property investment loans regularly to ensure you are on the best deal available. Over the course of a long-term property investment plan, the type of loans available and your situation may change dramatically.
2. Be disciplined about the kinds of add-ons you pay for with your investment loan. Only get features and benefits you will really use. They all cost you money.
3. Do the math and change loans if there is a long term benefit. Even though the costs can add up to anywhere from hundreds to thousands of dollars, changing to a more sensible structure or lower interest rate now may actually save you quite a bit more over a long investment period. With the help of a good mortgage broker, you won’t even need to do most of the work.

 The extra money you save or earn because of the change can help you to expand your property portfolio, undertake redevelopment projects, take advantage of the tax benefits of paying your interest in advance, finance renovations on your home, or even top up your superannuation.

For more information on property investment loans and creating wealth through property investment

For more information on investment finance or the loan that is in your best interest, talk to your local mortgage broker. Or call us at any time on 13 LOAN or direct on +61 2 9249 3739.