Buying Investment Property

There are new products launched into the Australian home loan market almost every day, so even if you have used one type of loan previously, the same loan might not be best for your investment property. The selection process can be difficult; luckily, our First Choice Mortgage Brokers team can compare hundreds of different home loan products to tailor a package that suits your individual finance needs.

Especially if you are purchasing your first investment property, mistakes during an investment property application can be easy to make with expensive consequences. So, it’s a smart idea to speak to a First Choice Mortgage Broker before making any financial decisions.

It is also important to remember that unlike purchasing a home to live in, an investment property is purchased for the intention of profiting. So, different factors are significant when looking for an investment property. No matter your financial objectives, First Choice home loan brokers in Sydney can help you avoid costly mistakes with expert investment advice!

If you already own an existing property, you will be familiar with the property purchasing process, so it is less difficult to take the next steps in purchasing a property for investment.

Utilising the equity in your home to finance an investment property is an excellent way of getting your property to work for you. For further information, get in contact with a First Choice mortgage broker in Sydney so they can examine your current financial position and locate the best loan for you – best of all; there is no cost to you!

When it comes to property investing, applicants will have a higher chance of qualifying for an investment loan if they meet the following criteria:

• Sufficient deposit: It is now quite difficult to borrow more than 80% of the property value, so applicants will need at least a 20% deposit in most cases. If you wish to borrow more, you will be required to demonstrate collateral in other assets. If you do not have the appropriate deposit capital, there will likely be no loan options available.
• Genuine savings: Most lenders may require you to have deposited or accrued a certain amount of money in a bank account for at least three months prior to submitting your application. As this is a good demonstration that you can the ability to save and handle finances.
• Clean credit history: Most lenders prefer that you have a decent credit ranking and a clean credit history.
• Good income and permanent employment: Lenders would typically ask you to prove a steady income, as this is a good demonstration that you can pay the mortgage. If you’re a professional investor who doesn’t work and benefits purely from investments, you’ll need to have bank accounts or tax reports to justify your profits.

Our mortgage brokers have a lot of expertise and know which banks have the most flexible policies. We will assist you with putting together a good loan application so you can get accepted the first time.

In general terms, a property is considered a moderately low-risk investment and can therefore be viewed as less volatile than shares. Some of the advantages in investing in property include:

Tax benefits
A number of deductions can be claimed on your tax return, such as home loan interest, property repairs and maintenance, council rates and taxes, insurance and agent fees.

Negative gearing
When the return or income you receive from your rental property is less than the expenses of owning that property (interest on your loan, council rates etc.) – the property is said to be negatively geared.

In some instances, the Australian Taxation Office will allow this 『loss’ incurred on the investment to be offset against other income, as a tax deduction.

Example:
Rent received: $9,000
Expenses incurred: $12,000
Loss which may be claimed as a tax deduction: $3,000
*Consult with your accountant to see how negative gearing can be applied to your personal situation.

Long-term investment
Thinking about your long-term goals? Investment properties are a great opportunity to achieve your goals and fund your retirement.

High leverage possibilities & loan to value ratios
A property investor can purchase up to 90% of the property price with mortgage insurance. This higher leverage capacity results in a higher return for the investor at a lower risk, enabling the investors’ personal finances to be available and not incorporated into the new property purchase. Please note that there is usually no mortgage insurance payable under an 80% loan to value ratio.

It’s important to note that you can make property investing work for you if you research and choose a property to suit your long-term needs and goals; however, the following section details some disadvantages to be aware of.

Liquidity
It takes time to sell a property, and it can take many months before the sale to come through, which means that you will have to wait before you can see financial rewards or access sale proceeds. There is no quick way to sell your property if something goes unexpectedly wrong.

Vacancies
In the event of when or if your property is untenanted, you will need to cover the full mortgage repayment from your own finances. It’s a good idea to also factor in any repairs or maintenance that you may be required to pay from your own funds.

Bad Tenants
Unfortunately, not everyone is as responsible with your property as you are, and the wrong tenant can damage your investment, refuse to pay rent and refuse to leave when asked. Disputes can sometimes take months to resolve.

We offer an obligation free quote on landlord insurance. Please discuss our tenant insurance options with one of our First Choice Mortgage Brokers.

Rising Interest Rates
If you have selected a variable rate for your investment loan, there is always a risk that your mortgage repayments can increase. Which can cause financial stress if you have not factored the rate rise into your finances. Interest rate rises can also affect the liquidity of your investment by extending the property sale periods.

Ongoing Costs
In addition to the standard costs such as rates, strata, or home insurances are the ongoing maintenance costs associated with the new property – the age of the property’s age will have a bearing on how much it will cost you in ongoing maintenance.

Overexposure
Having all of your eggs in the one basket, so to speak, can have significant effects on you if your investment property in a certain geographical area decreases in value.

Capital gains tax & other costs
You may be charged capital gains tax when you sell the investment property. Other costs which are incurred when you sell the property, i.e. real estate selling costs, need to be taken into consideration.

Please contact First Choice Mortgage Brokers on 1800 111 455 to speak to a finance specialist for more information on investing in property.