It’s true that there are quite a number of lenders out there who offer investment loans but you need to know the most important thing: they must fit your specific goals and risk profile. Below is the things you need to know on how to get an investment loan.
To make sure that you can buy more investment properties and achieve your investment goals at a faster rate, you must align you property portfolio with the right loans. This will not only maximise your borrowing capacity, it will also extend your interest only periods and reduce the amount of your deposits.
Don’t forget: the goal of investing is to make a profit!
If you are making a loss on your investment, the only consolation you have is that you are saving on tax. But this means that you are losing money! Some investors choose to invest in negatively geared properties since their growth outstrips their holding costs.
Once you sell the property, you have to pay capital gains tax on the profits from the sale. However, the tax benefits offered by negative gearing allows you to hold more investment properties without making an impact on your lifestyle.
Renting out your home and turning it into an investment
When you live in your own home, you generally enjoy freedom from tax consequences. But if you sell it, you should first get the exemption from capital gains for the sale of the principal place of residence.
Remember that none of the expenses associated with owning the home are tax deductible. But should you opt to rent it out, the situation changes.
No matter what the situation you’re in – you may be renting out your home or purchasing another home as an investment to rent out – it is important that you seek the advice of an accountant specialising in the property investment you are looking into. Consider also the following:
- Income tax implications
- Ownership structure
- Capital gains tax implications
- Capital losses and capital growth
- Renting out part of your home
- Negative gearing
- Positive gearing
- Depreciation
- Rental income
The information above is general in nature. It is always wise to consult with an accountant who specialises in taxation of property investments. Remember that your situation is unique and it is of utmost importance to seek financial advice from an expert before making any investment or making a decision regarding your finances.
Which lenders should you approach for help?
Australian banks consider investors who tend to borrow more as high-value clients. However, they consider an investment loan as high risk to them. That is why lenders not only tend to lend less as a percentage of the investor’s property value, they also impose stricter guidelines.
It is important to look for a bank or lender who would encourage you and not one who still hold on to conservative views and traditional attitudes towards investment loans.
Each lender has a different credential, so further discuss your needs and how to get an investment loan. Once we see your full details, we will assess your capacity to borrow and recommend lenders.
Here’s how to increase your borrowing power:
- Consider reducing your credit card limits
- Together with your spouse, apply for a loan so that your incomes will be consolidated
- Invest in positively geared properties
- Opt for fixed or variable interest rates
Every bank has its own unique way of assessing investment property loans. Remember that your capacity to borrow may be increased or reduced depending on your specific situation:
- Rental income: Most banks consider only 80% of your rental income in their assessment but others use 100%.
- Other income: All banks assess your base salary in the same way but they differ in the way that they handle additional income such as overtime, bonuses, allowances, commissions, dividends, trust distributions, and income gained from personal employment.
- Assessment rate: Most banks calculate your borrowing capacity by adding up to 2% to the actual rate that you are paying to ensure that you can still afford to pay the loan even if the rate increases.
- Existing debts: If you have a large portfolio, you may be faced with a major problem. You see, some banks assess the repayments on your existing debts using principal and interest repayments. even if you are paying interest only.
- Negative gearing: Not all lenders take into account the benefits of negative gearing so if your existing portfolio is not positively geared, consider finding a lender who would consider these benefits in their calculation.
Apply for an investment loan today!
As you may well know by now, your choice of investment home loan largely depends on your specific financial goals and there is no short supply of borrowing options and strategies available.
Seek independent financial advice before borrowing money to invest.
Borrowing 100% for an investment property?
Do you know that there are only two ways by which you can get approval for a 100% investment property loan?
- Find an investment guarantor: If you can find a guarantor, such as your parents, who can guarantee your loan using their asset as security, then it’s highly probable that you can avail of a 100% investment property loam and pay no LMI (lenders’ mortgage insurance) premium.
- Using another property as security: You may not know this but if you have own property, then you need not worry where you’re going to get money to use as deposit for your next investment. You can use the equity in that other property as deposit.
If both of the above is not available for you, then you can only borrow up to 95% of the property’s value.
Call us now on 1300 00 13 20 or fill out the form here to receive your free investment loan assessment.
