How to Get a Property
How Much You Can Borrow?
Before considering any property investment loan, it is important to work out how much you will be able to comfortably borrow without causing yourself too much undue stress should your circumstances change. This will also allow you to set a target price range in which to start looking and you may find that you may need to delay your decision to investing in property until you can increase your investment budget.
The rental income from your investment property will be added to your income when calculating how much your can borrow. For an approximation of your borrowing capacity, use our Borrowing Capacity Calculator and for a definitive report on your borrowing capacity to take to your Accountant or Financial Adviser, contact us for an obligation free appointment.
Calculate Your Loan and Purchase Costs
You will still require a deposit for an investment property and additional funds to cover the purchase expenses. The deposit required is generally between at least 5-10%.
If you have existing property, you may be able to use your equity to cover some or much of the deposit. It is important at this stage to talk to us or your own broker about the different requirements of each of the lenders. In addition to your deposit, there are also these costs associated with an investment property loan
• Loan application fee
• Valuation fans
• Stomp duty and other statutory government charges – keep in mind that these are often higher for investment properties than owner occupied properties
• Conveyancing and legal fees
• Lenders Mortgage insurance if you are borrowing more than 80% of the property value
Investigate Your Investment Loan Options
Property investment loans are available to suit just any investment strategy. The common loan options for property investment include:
• Prinicpal and Interest Loans: These are structured very similarly to owner-occupied loons where you repay the amount borrowed and the interest
• Line of Credit loans: If you already own property and have equity, you can apply for a line of credit that allows you to use your existing equity as the deposit for your investment property
• Interest Only loans: Suit investors who are focused on achieving capital growth in the short to medium term, and often go hand in hand with negative gearing Investment Property Loans also have more flexible repayment options including the ability to pay interest in advance. It’s important to speak to your Accountant or Financial Adviser about the best repayment option for your investment strategy.
Consider A Pre-Approval
Getting an investment loan pre-approved will ensure you shop within your budget and will give you additional confidence during stressful negotiations. As you won’t yet have a property to secure the loan against, a formal pre-approval works the same as a formal loan application, except without the security details Essentially a Pre-Approval will see you reach the stage of “Conditional Approval.
Keep in mind that your lender will review your situation prior to granting formal approval so if your situation has changed between the granting of your pre-approval and your submission of the loan, you may be required to undergo the lender’s credit assessment again. This can be positive especially if your situation has improved over time. Contact us if you’d like to discuss obtaining a pre-approval for an Investment Property Loan.
Find a Suitable Property
You may choose to purchase a residential investment property, commercial investment property, or even a holiday rental investment property. These are some important points to consider when choosing an investment property:
• Location: is the property in a location that will be well-tenanted or is likely to experience property price growth? Remember, you’re not living in the property so it may not be in an area that you would normally consider
• Demographics: is the property suitable for the type of tenants in the area, e.g. back yards for young families? Again, you’re not living in the property so try to take the emotion out of the decision
• Infrastructure: are there transport, shops, cafes, and schools close by?
• Development: what capital improvement is earmarked for the area? For example, a new shopping centre will bring more work options for possible tenants and lead to capital growth in the value of your investment.
We do understand the property market so if you have any questions about buying an investment property, please contact us.
Type of Investment Loans
Many lenders extend their standard home loan products to cover the purchase
of residential properities for investment – non owner occupied. The application process for this type of loan is the same a that of a regular owner occupied residential loan, except that the income from the investment property is also included within your affordability calculation. You can read about the home loan process here.
Where the property being purchased for investment is a commercial property,
a commercial loan will be required. You can read about commercial loans here.
You may be able to borrow money to purchase property using a SMSF. Any property purchased using a SMSF loan works in the same way as any other investment property loan.
With a SMSF loan you can gear into property by borrowing within a Self Managed Super Fund (SMSF). SMSF loan terms and features, including interest rates, Loan to Value Ratios on residential or commercial securities and the loan term and amount, will vary widely between lenders so it’s best to talk to us or your broker to find out what options are available to you.
When considing borrowing through your SMSF you will need to consider:
- Establishing or reviewing your SMSF
- Establish the Property Trust Deed
- Give instructions to Solicitors/Conveyancers
- Obtain loan approval
- Contracts exchanged
- Loan documents issued
Frequently Asked Questions
Is property investment easier if I already own a property?
If you have equity in any kind of existing property, for example your household residence or one more investment property, you could have the ability to utilize this to boost just how much you could get a loan and a lot more quickly develop a substantial property portfolio. Ultimately it will certainly depend on your personal economic circumstance and investment targets.
What Expenses Are associated with getting an investment property?
When buying an investment property, there are other expenses along with the purchase rate of the property that you will need to think about. These may include:
- Building and pest assessments
- Survey report
- Strata inspection report
- Loan application fee
- Lenders Mortgage Insurance
- Refinancing or switching costs
If you’re thinking of investing in property, contact us for a confidential chat about your options.
How flexible does an investment property loan need to be?
Versatility in your investment property loan can mean several things, the ability to make additional repayments, redraw your loan, split your loan between a fixed and variable interest rate, or also move the loan in between homes. Some of these may be included others may come with a fee. You need to be clear concerning your investment technique prior to picking an ideal investment property loan. As switching loans can be costly, it’s important to talk to us, your Accountant or your Financial Planner before making any decisions about your investment property loan.
Why you need a broker like us?
A great broker will certainly assist you to discover the investment property loan that is most suitable for you to meet your investment targets, whilst working carefully with your accountant and/or financial planner. With access to investment property loans from a big range of lending institutions, your broker will be able to save you money and time.
How an I pay my investment property loan off faster?
If your investment plan requires you to pay out your investment property loan swiftly, there are a number of techniques you can take, including:
- Splitting your minimum month-to-month payment into 2 and paying this quantity fortnightly
- Dividing by four and paying weekly; this efficiently boosts the amount you repay every month
- Making both regular and ad-hoc added payments
- Maintaining a greater repayment amount if rates of interest fall
Are there Interest-Only Repayment options on investment property loans?
Yes, Interest-only loans match investors who are focused on accomplishing capital development in the brief to moderate term and usually go hand-in-hand with negative gearing. Interest-only loans will certainly have reduced payments compared to a principal and interest loan and might be offered as a fixed price or a variable price loan item. Interest-only loans could function to minimize your complete outgoings and improve your cash flow.
Paying Interest ahead of time
Paying interest in advance on your investment property loan works by paying the interest you will accrue over the next 12 months in one lump sum before it is in fact billed. This permits you to declare the costs versus your tax obligation a year earlier than you would normally be able to. Usually available on fixed-rate investment loans, you may also benefit from a rebate if you pay the interest beforehand.