Are investment loans harder to get approved?

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mitchH
Posts: 49
Joined: Thu Jun 20, 2013 6:56 pm

Are investment loans harder to get approved?

Post by mitchH »

Hi broker, I am planning to buy a property for investment purpose and I am thinking about applying for an investment loan. I am a bit worried because a few of friends who had applied for investment loan were declined. Are investment loan generally harder to get approved? If yes, is there a reason for this?

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Otto Dargan
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Re: Are investment loans harder to get approved?

Post by Otto Dargan »

Hi and welcome to the forums mitchH,

Lenders may have different lending policies for those who want to buy property for investment purpose. They may not want their loan portfolio to consist too much of the same type of loan and so they may have different exposures for investment loans.

Investment loan generally has interest only repayments which increases the lenders costs of funds and narrows the margin on the loan. This could be why lenders may not easily approve the loan. The lender may also fear that if you get in to a financial difficulty then you will focus on paying loan secured on your house while ignoring the other debt.

Another reason could be that investors generally tend to rely heavily on negative gearing and lenders become wary of this.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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mitchH
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Joined: Thu Jun 20, 2013 6:56 pm

Re: Are investment loans harder to get approved?

Post by mitchH »

Oh okay, well this is the first time I will be buying such a property. What exactly does negative gearing mean and why is it seen as a bad thing?

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Otto Dargan
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Re: Are investment loans harder to get approved?

Post by Otto Dargan »

Hi mitchH,

Negative gearing is where you make a loss on the cashflow of your investment property and then claim that loss as a deduction when you lodge your tax return. You receive a tax refund for the part of the loss.

This is seen as an unfavorable situation for lenders because you only receive your negative gearing tax refund when you lodge it and this may not be monthly unless you lodge a request to vary your PAYG tax withholdings. Therefore you may have a cashflow problem until you receive your tax refund.

To make this clearer, let’s suppose you earn $100,000 and the expense of the property is $110,000. If your property made a loss of $10,000 per annum then your taxable income would be $90,000. If the tax rate at the time was 30% then you would receive $3,000 as an additional tax refund.

If you would like to know more about these you can check out our website for more details. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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mitchH
Posts: 49
Joined: Thu Jun 20, 2013 6:56 pm

Re: Are investment loans harder to get approved?

Post by mitchH »

Ohhh I see. Wow, this had made things so much clearer for me. Thanks, I really appreciate you answering my questions. Will call you if something comes up. Bye and have a nice day. :)

kenryu
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Joined: Wed Jul 03, 2013 8:27 pm

Re: Are investment loans harder to get approved?

Post by kenryu »

Hey guys, I am also about to buy an investment property. I am sure how cashflow are actually calculated. Can you tell what costs/ expenses are taken into account while calculating the cashflow?

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Otto Dargan
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Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Are investment loans harder to get approved?

Post by Otto Dargan »

Hi kenryu,

To estimate the weekly cashflow position of your next investment property, you can use our Investment Property Cashflow Calculator. This allows you to figure out whether the property will be positively or negatively geared.

Some of the expenses that should be considered while calculating the cash flow are:
  • Council rates
  • Water rates
  • Building insurance
  • Property management fees
  • Maintenance
  • Home loan repayments
Some of the expenses which are not be included in the calculator are:
  • Gardening
  • Landlords insurance
  • Contents insurance
  • Renovations
  • Bank fees such as an annual package fee
  • Changes in interest rates
  • Purchasing costs such as legal fees, lenders mortgage insurance and stamp duty
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

kenryu
Posts: 53
Joined: Wed Jul 03, 2013 8:27 pm

Re: Are investment loans harder to get approved?

Post by kenryu »

Oh okay, didn’t know about these. Thanks for sharing this info. Have a nice day, bye!

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