Everything You Need to Know About Investment Property Loanssupport
According to Corelogic, approximately 20% of Australians hold an investment property, that is over 5.1 million of us in the investment market. Keep in mind that owner-occupied property is bought to be lived in, whereas an investment property is generally purchased with the intention of making money, usually with rental income or tax benefits.
In this article we discuss the many pros and cons of investing in the property market and building your investment portfolio using this strategy.
What Is an Investment Property Loan?
An investment loan is a mortgage that one can take out to purchase an investment property. Generally speaking, lenders charge higher interest rates and require larger deposits for investment loans as there is a higher risk of defaulting on this type of loan versus an owner-occupier loan.
What the Main Types of Property Investments?
|Negative Gearing||Negative gearing is a loss you see when your expenses are greater than your rental income, which can be claimed as a tax deduction. Investors use this strategy to cover their losses when waiting for their investment to increase in value.|
|Buy and Hold||This is essentially buying a property and waiting for it to appreciate (increase in value) before selling it to make a profit.|
|Renovation||For people who have the time, DIY skills, and money, they will buy a “fixer-upper”, renovate it to make the property’s value increase, then sell it to see a profit.|
|Passive Development||This involves investing in a project before a property has been developed, then making a profit when selling the property.|
What are the Types of Investment Property Loans?
- No-Frills Loan– This is a straightforward mortgage with minimal features and reduced interest rates and fees.
- Line of Credit Loan– This loan works by giving you the ability to access a pre-set amount of funds that are secured against your home.
- Bridging Loan– A short-term loan used to purchase a property before an existing property is sold.
- Interest-Only Loan– A type of loan where you only pay off the interest to free up your money for other investments.
Why Should You Consider Property Investment?
Property investment can potentially earn you good rental income, a capital gain, and you can take advantage of tax benefits such as negative gearing.
- CoreLogic estimates that a well-planned investment property can offer up to 5% in rental yield, but this figure can vary greatly depending on location, timing, and market conditions.
- A property offers more security and control as an investment and asset; this is a distinct advantage when compared to other investment types such as shares or hedge funds.
- There are numerous tax benefits if you have the right strategy in place and follow appropriate financial advice.
Disadvantages of Property Investment
Like other forms of investment, some level of risk will always be involved, and here are some other cons related to investing in property:
- There is a chance that rent may not cover your mortgage payments and other expenses.
- If there was a rise in interest rates this would mean higher repayments.
- If the property’s value goes down, you could end up owing more than what the property is worth.
- Investments involve many entry and exit costs – for example, stamp duty, real estate agent fees, and legal fees.
Interested in an Investment Property Loan? Speak to Pacific 8 Today
Pacific 8 can offer quick turnaround, no-fuss, and accommodating investment loans such as private mortgages, short-term loans, and caveat loans to aid in your property investment journey. We have built up a large portfolio of highly satisfied clients, supported by our solid testimonials.
If you are interested in working with a private lender or are curious about what an investment property loan could do for you, call us on +61 2 8188 1170 or organise a consultation with the experts at Pacific 8 today!