Diving into the world of investment loans can be an exciting but daunting process, especially for first-time investors and business owners. With property values and business opportunities on the rise, securing the right investment loan can be a game-changer.
According to the Australian Taxation Office (ATO), over 2.24 million Australians now own investment properties – that’s about 20% of the nation’s taxpayers. If you’re thinking about becoming one of them, there are some important things you need to know.
What is an Investment Loan?
An investment loan is a finance product specifically designed for purchasing an investment (usually a residential or commercial property). These investments are purchased with the goal of generating a regular income (by leasing out the property) or long-term capital gains. Investment loans can be either principal and interest or interest-only, depending on your preferences.
Investment Property Loan vs. Regular Home Loan
A loan for property investment is different from a regular home loan in a number of key ways. A traditional mortgage is a finance product for owner-occupiers who plan to live in the property they’re buying. Investment mortgages are seen as a high-risk finance product, so they’re often subject to stricter lending criteria and may require a larger deposit. Investment loan rates also tend to be higher because of the perceived risk to the lender.
There may also be certain restrictions on what kind of property you can purchase as an investment. For example, some lenders may require a minimal rental yield or have a cap on the number of bedrooms an approved investment property can have.
Investment Loans: Tips for First-Time Investors and Business Owners
It’s important to start your investment journey on the right foot. Before applying for investment finance, take some time to:
1. Understand Your Financial Situation
Do a detailed assessment of your current financial situation. Factor in your income, expenses, debts, and savings. This will help you to work out how much you could potentially afford to borrow.
2. Set Clear Investment Goals
What are you hoping to achieve with your investment? Do you want to expand your business? Generate a passive income? Or are you hoping to build long-term wealth through capital gains? Your investment goal will affect what kind of finance product will be most suitable for your needs.
3. Research the Market
You’ll need to understand relevant market trends to accurately predict your estimated returns. Look for profile reports on specific suburbs you’re interested in and read up on the potential risks facing investors.
4. Choose the Right Loan Product
Not all investment finance products are created the same. Look for an investment mortgage that has competitive interest rates, flexible repayment options and features that will suit your needs (such as offset accounts or a redraw facility).
5. Prepare a Strong Application
Don’t risk having your application rejected because you forgot to include some of the requested paperwork. Gather all the necessary documents in advance to avoid unnecessary delays.
6. Manage Your Risk
Risk is a part of investing, but there are steps you can take to minimise those risks. For example, you may consider diversifying your investments or taking out insurance to better protect your assets.
7. Get Expert Advice
To ensure you get the right finance product for your needs, why not consult with an experienced finance broker for some tailored advice? A broker will be able to review your current financial situation and then identify which loan product will be most suitable for your needs and future investment goals. They’ll even take care of the paperwork for you!
Talk to the Experts About Investment Loans
With some careful planning and expert advice, you can succeed as a first-time investor. For personalised assistance with your investment journey, contact the experienced team of mortgage brokers at ZEP Finance. We can talk you through the different options, make recommendations based on your best interests and help you secure the investment finance you need.
Dive into the world of investment loans today with ZEP Finance.
After studying business and finance at university, Zain initially expected to pursue a career in finance. However, his passion for property and the experience of buying his own home led him to mortgage broking. He began his mortgage brokering career in 2009 and founded ZEP Finance in 2010.
