Most of the same types of loans and features are available for both investors and owner occupiers. However, some lenders may charge higher rates for investment properties if the associated risks are higher.
Banks will usually accept equity in a property as collateral against which they may be prepared to lend; in fact, many investors started out this way. You could potentially borrow the full purchase price of your property – plus whatever amount you’ll need to pay additional fees (e.g. stamp duty) – without actually having to contribute a deposit. There is a risk that both the investment property and your home are at risk in the event you cannot fund your new mortgage.
Negative gearing is when the annual cost of owning your investment property – through interest repayments, strata fees, maintenance etc (see “additional fees” for a full run down) is more than the income you make from that property. This loss can be used to reduce your income tax bill.
A self-managed super fund loan is when you withdraw money from your super fund to invest in a property. There are a few rules and restrictions around this, so it’s a good idea to consider getting financial, tax and legal advice before considering this type of loan.
There are a number of factors that will determine the amount you can borrow, including (but not limited to) your current income and the purchase price of the property, so it’s best to chat through your options with your mortgage broker.
To find out more about the different types of home loans, head over to our loan types guide where we break down each loan, including the advantages and disadvantages of each.
You will need a minimum of between 5 – 10% of the value of the property for your deposit, although this will vary between lenders. Your mortgage broker will be able to give you more information about this.
Most lenders will let you choose your repayment cycle, although if possible, it is a good idea to think about aiming for fortnightly payments rather than monthly, as you will make more repayments over the year which will shorten the length of your loan.
There are a few fees and costs that you may need to budget for. Some of these include:
Once you have settled into your property, you will also need to budget for council and water costs along with your regular loan repayments
Landlord’s insurance (or investment insurance) will cover your property against damage or theft caused by the tenant, events such as weather and fire, as well as outstanding rent should the tenant not be up to date. It will also cover you for any liability should a tradesperson be injured while working on your property.
There are many reasons why investment property is a worthwhile consideration:
This is the increase in the value of the property over time – the long term average growth rate for Australian residential property is currently at around 9% per year.
This is the income you receive by renting out your investment property and is often referred to as yield. You can work out the yield on your property by dividing the annual rent by the total purchase price and multiplying by 100, to get a yield percentage. Generally speaking, a more expensive property would generate a lower yield and will more likely result in a higher capital growth over time.
If the cost of owning your property, including interest repayments, strata fees, maintenance etc (see “additional fees” for a full run down) is more than you receive in rental payments, the Federal Government will allow you to offset this loss against your taxable income.
Leverage is when you use the equity from your current home or property to assist with the purchase of another property.
Information current as of 2015-09-29