Property Investment is a great way to generate income, build equity and access tax breaks. But to achieve this, there are a number of things you need to consider and we're here to help educate you on everything you need to know.
What to know when comparing investment loans
Property Investment isn't as straightforward as a home loan - the structure of your loan, or loans, need to match your investment strategy. So let's look at some of the questions you need to ask yourself.
Investment Strategy - Do you want to pay off your loan faster or do you want to keep your savings in an offset account? Depending on your strategy, different loans will better suit your strategy.
Tax Breaks - Using your property as an investment can get you tax breaks on costs such as Lenders Mortgage Insurance.
Calculating Rental Yields - Sounds complicated doesn't it? We'll we've simplified it here.
What loan features you need - If you're sitting around with lots of cash, an offset account is a great idea. The ability to pay off only the interest portion of your loan will help those investors with certain cash-flow strategies.
Which Lender to choose - Not all lenders are equal and some view property investment as more of a risk that others. Some lenders also view certain borrowers more favourably, so if you don't shop around you could end up with a loan with the wrong lender.
Key Features of an Investment Loan
Interest Only Payments - Paying off only the interest portion of your loan is a common strategy but needs the proper advice and guidance. Our mortgage brokers are experts in telling if this is the right strategy for you.
Offset Accounts - An offset account lets you store extra cash that you've saved against the principle of the property.
Loan Splits - Splitting your loan between a fixed a variable portion can help manage your risk to interest rates moving up and down, affecting your investments cash flow and strategy.
Lines of Credit - Access to a quick line of credit can be very useful for investors needing to inject some quick money into their investment.
Why Use a mortgage broker to compare investment loans?
In today's market, with prices continuing to soar, many buyers are buying to invest rather than to occupy. More than 2 million Australians have investment properties, it's quickly become one of the most popular investment strategies in Australia. You can build equity in a property both by the rise in the price of house and the collection of rent. There are also several tax benefits to investing in property including negative gearing and depreciation.
Negative gearing and depreciation can be complicated and it's important to make sure your investment loan has a structure that matches your tax goals. With the guidance of a mortgage broker, you can confidently select the loan option that will allow you to maximise your investment returns and keep your tax return tidy. See also What are the tax implications of investing in property.
Pro's and Con's of Property Investment.
- Investing in property is a tangible asset you can see and touch.
- You can increase the value of your investment property with sweat equity.
- Generate rental income. See also Rental yield.
- Tax savings - interest you pay on the loan can be offset against your rental income.
- You may have to supplement some of the mortgage repayments with your own income, as the rent you receive may not cover all of it, plus other expenses.
- If you have secured a variable rate for all or part of your loan, your repayments may increase as the cash rate does. See also Variable loans and Split loans.
- If your property remains vacant for a short or long period of time, you'll need to pay for your loan repayment out of your own pocket.