By buying aninvestment property, you can potentially earn a great rental income, a capital return and take advantage of tax benefits like negative gearing.
More first-home buyers than ever are choosing to invest in property rather than buying an owner-occupied property or choosing to ‘rentvest.‘
By getting the right information and applying with the right lender, you’ll ensure a better property investing experience.
Should I Buy An Investment Property?
- Australia doesn’t have very restrictive investment laws or banking regulations like some other countries.
- Most bank regulations in Australia are nation-wide not state by state.
- Mortgage brokers in Australia often provide free services for residential loans.
- Investment loans are highly-leveraged which means you can maximise your potential returns by only having to provide 5-10% of the property value as deposit upfront.
- There are many tax benefits you can take advantage of if you have the right strategy in place and get the right financial advice.
Most property investors are professionals who earn high taxable incomes and are in a strong financial situation.
Buying an investment property can be very expensive. Especially if you’re borrowing at a high loan to value ratio (LVR).
For instance, an investment loan at 95% LVR is only suitable if you’re in a strong financial position and have a good credit history.
Someone with a poor credit history isn’t suitable for an investment loan as you won’t make a decent return on your investment.
Call us on 1300 889 743 or complete our free online assessment form and speak with one of our brokers about your options.
How To Borrow 100% For An Investment Property Loan
There are generally two ways you can borrow 100% for buying an investment property. They are:
- Guarantor loan for investment: Your parents can use their property to secure your investment loan. This will allow you to borrow up to 105% of the property price and you won’t need to pay Lenders Mortgage Insurance (LMI).
- Another property as security: If you already own property then you can use the equity in your existing property as a deposit for the new investment purchase. You can borrow 100% or 105% of the property value depending on the lender you apply with.
Without a guarantor or equity in another property, you’ll be limited to borrow a maximum of 95% of the property value.
Need help getting approval for a 100% investment loan?
Our mortgage brokers specialise in getting tough investment situations approved. They can help you find the right lender from our list of over 50 lenders.
Contact us on 1300 889 743 or complete our free online assessment form to speak with one of them about your situation today!
Buying An Investment Property With Equity
The equity from your existing property is one of the most powerful tools you can use to start your investment journey and build your portfolio.
You can use the equity as a deposit for an investment loan. If you have enough, you can borrow up to 80% of the property value without using your own cash.
Learn more here about how you can access your equity.
Is it harder to get a mortgage for an investment property?
Not necessarily. While it might seem difficult to get approved for an investment loan, it’s not impossible. Here are some things to remember:
- If you want to borrow over 90% of a property’s value, most lenders accept equity in your home as a deposit.
- Avoid the common mistakes that investors make so you can start your investment journey.
- One of the biggest challenges for investors is borrowing power. We know lenders who are generous with their borrowing power calculations and can help you maximise your borrowing capacity.
- If you own multiple investment properties, we recommend a multi-lender strategy. This means refinancing your existing loans with the cheapest lender possible, then applying to buy new properties with the lender that allows you to borrow the most. This approach gets you the amount you need without paying so much interest.
Our team of mortgage experts has years of experience working with lenders and knows the ins and outs of their policies. We can help you work out a plan that will increase your chances of being approved for an investment loan.
What else can I invest in?
Other than property, you can also use your investment loan to invest in shares, managed funds, options or business.
Lenders generally accept all investment purposes, as long as they’re legal.
Buying An Investment Property FAQs
Simply put, negative gearing is the loss you make when the sum of your interest and running costs is greater than your investment income.
Effectively, the aim of this strategy is to get into the market early and increase your investment income over time to cover your expenses.
Meanwhile, you can claim the net loss as a tax deduction against your other income.
It’s recommended that you always seek independent financial advice from your accountant or a financial expert before deciding on an investment strategy.
Every lender uses their own method to calculate your investment property borrowing power.
Generally, lenders will take into account your:
- Gross income: Your gross income includes all of your base income, as well as overtime, bonuses, commission, tax-free income and rental income.
- Tax or medicare: Every lender has different ways to assess your tax and medicare payments.
- Negative gearing benefits: Most lenders consider negative gearing benefits when calculating your serviceability. This means that, normally, investors will be able to borrow more than home buyers.
- New mortgage: Lenders generally assess the repayments of your new loan at a higher assessment rate, usually 1% to 3% higher than the actual interest rate you’ll pay.
- Existing commitments: Lenders take several factors into account when assessing your existing commitments, including existing mortgages, credit cards and personal loans. Some lenders will include notional rent, minimum estimated rent, when assessing your loan application.
- Living expenses: Banks use either your estimated living expenses or their calculation of the minimum expenses for a family of your size, whichever is higher.
- P&I vs interest-only: For investors looking to buy more properties, interest-only loans allow you to borrow more but usually charge a slightly higher rate. If you want to pay less interest, a principal and interest loan is usually cheaper.
Setting aside the documents you’ll need from the start will help you prepare for when you do your taxes.
Most property investors normally procrastinate talking with their accountant until the next year when they do their taxes. As a result, they end up wasting valuable time to find the right documents and figures.
You can provide all of your documents to your accountant at the start and let them take care of it. Many professional investors provide their accountants with a summary of the income and expenses for their property.
This can not only help you reduce your accounting fees but you can check your cash flow position with the property, identifying abnormally high expenses in the process.
You can use our investment property spreadsheet template to give your accountant the required figures.
From a tax perspective, you could be at a disadvantage if you get an ordinary mortgage. You would only be able to claim the interest on the loan balance at that time as the tax deductible interest.
For instance, suppose you have a balance of $250,000 remaining on a $1,000,000 mortgage that you’ve been diligently paying off. One day you redraw $200,000 for deposit to buy an apartment to live in and rent out your last property.
Your new loan would be $450,000, however, the deductible investment loan interest would be limited to the interest on the previous $250,000 loan balance.
How can an offset account help?
Offsets for investment loans are like extra bank accounts that are linked to your loan account. Any excess repayments you make can be deposited in this account.
Although this account doesn’t earn any interest, the lender will include the balance in this account when calculating your loan interest.
For example, if you have a $1,000,000 loan and $300,000 in your offset account, the bank will calculate your loan interest only on $700,000. This will give you a much better tax result.
Disclaimer: This is general information only and shouldn’t be taken as tax advice. It’s recommended that you speak with your accountant for professional tax advice.
Get The Experts On Your Side
Whether you’re a first-time investor or a veteran investor, our mortgage brokers are here to help you every step of the way. Some are even seasoned property investors who know firsthand the pitfalls and rewards of investing in property. Call us on 1300 889 743 or enquire online today.