Hi everyone,
I am a plumbing foreman for a housing company and I have an annual salary of $72,000. I have got a little more than $100,000 in savings and I am planning on an investment. I think investing in a house is a good decision, given the rise in house prices in Australia.
However, I have never made a property investment before and do not know how it really works. How much might I be able to borrow for the investment? I would be grateful if someone could give me more information on this.
Should I buy a house as an investment?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Should I buy a house as an investment?
Hi lukeparsons, welcome to the forum.
It may be possible for you to borrow to invest in a property. However, you will have to meet tougher requirements to get an approval for an investment loan. This is because lenders consider investment loans to have a higher risk than standard home loans.
The following are some of the criteria that you may have to meet in order to get an investment loan to buy a property:
Lenders may also put additional requirements on 95% investment loans. Some lenders require you to make principal and interest repayments until the loan is reduced to less than 90% of the property value. Apart from the 5% in genuine savings, they may also require you to have 20% equity in another property.
You may also be able to borrow 100% of the property value. There are two ways that you can do that:
Otto
It may be possible for you to borrow to invest in a property. However, you will have to meet tougher requirements to get an approval for an investment loan. This is because lenders consider investment loans to have a higher risk than standard home loans.
The following are some of the criteria that you may have to meet in order to get an investment loan to buy a property:
- You need 5% - 10% of the property value in genuine savings.
- You should have a good credit history.
- Your credit score should be good.
- You should have stable income and employment.
Lenders may also put additional requirements on 95% investment loans. Some lenders require you to make principal and interest repayments until the loan is reduced to less than 90% of the property value. Apart from the 5% in genuine savings, they may also require you to have 20% equity in another property.
You may also be able to borrow 100% of the property value. There are two ways that you can do that:
- Investor guarantor loan: If your parents provide guarantee for your loan using their property as security then you may be able to borrow up to 105% of the property value. This helps you to pay for other costs associated with your purchase, and you may not need to pay LMI as well.
- Equity loan: You may be able to use the equity in a property you own as the deposit for your investment. You may be able to borrow up to 105% LVR in such case.
Otto
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- Posts: 42
- Joined: Thu Jun 20, 2013 7:07 pm
Re: Should I buy a house as an investment?
Hi Otto,
The main concern for me is whether the investment will be profitable for me. I want the investment to actually bring in some money for me, the sooner the better. I do not want to keep on paying for the investment for the foreseeable future. Can I get any idea on when I would be able to get returns from my investment?
The main concern for me is whether the investment will be profitable for me. I want the investment to actually bring in some money for me, the sooner the better. I do not want to keep on paying for the investment for the foreseeable future. Can I get any idea on when I would be able to get returns from my investment?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Should I buy a house as an investment?
Hi lukeparsons,
You can use the Investment Property Cashflow Calculator to predict the weekly cashflow from your property investment. The calculator takes into account the details of the purchase, your current and expected rental income, and other costs of maintaining the property to accurately estimate the cashflow on your property over 30 years.
Usually, most investment properties have a negative weekly cashflow when they are purchased. The property value and the rental income increases over time and the investment may have a positive cashflow when the income outstrips the costs of maintaining the property.
If you need more information regarding your home loan application then you can call us on 1300 889 743 or fill out our free assessment form.
Cheers,
Otto
You can use the Investment Property Cashflow Calculator to predict the weekly cashflow from your property investment. The calculator takes into account the details of the purchase, your current and expected rental income, and other costs of maintaining the property to accurately estimate the cashflow on your property over 30 years.
Usually, most investment properties have a negative weekly cashflow when they are purchased. The property value and the rental income increases over time and the investment may have a positive cashflow when the income outstrips the costs of maintaining the property.
If you need more information regarding your home loan application then you can call us on 1300 889 743 or fill out our free assessment form.
Cheers,
Otto
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- Posts: 42
- Joined: Thu Jun 20, 2013 7:07 pm
Re: Should I buy a house as an investment?
Thanks again. You have mentioned ‘costs of the property’ in your reply. I am not sure what they really are. What costs are there apart from the repayments on my loan?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Should I buy a house as an investment?
Hi lukeparsons,
Although the loan repayment is one of the biggest expenses, there can be many other expenses of maintaining a property such as:
Otto
Although the loan repayment is one of the biggest expenses, there can be many other expenses of maintaining a property such as:
- Council rates
- Water rates
- Building insurance
- Property management fees
- Maintenance
- Gardening
- Landlords insurance
- Contents insurance
- Renovations
- Bank fees such as an annual package fee
Otto
Re: Should I buy a house as an investment?
Hello everyone!
I am also thinking of investment in a property. However, I have heard that banks may not approve loans for some types of property. Could anyone tell me what are the types of property acceptable to banks?
I am also thinking of investment in a property. However, I have heard that banks may not approve loans for some types of property. Could anyone tell me what are the types of property acceptable to banks?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Should I buy a house as an investment?
Hi marylamb,
It is true that lenders do not approve loans for all types of property. As a general rule, the property should:
Cheers,
Otto
It is true that lenders do not approve loans for all types of property. As a general rule, the property should:
- Be a standard unit, house, townhouse or land and construction.
- Have bigger than 50m2 of living area.
- Be in a good condition.
- Be located in a major city or town with more than 10,000 inhabitants.
Cheers,
Otto