INVESTMENT PROPERTY LOANS
Investment Property Loans Made Easy
It doesn’t matter if you are buying your first investment property or if you are buying your 100th, we are able to help create an investment loan structure for your investment plans.
Your loan structure is very important when investing. Each property investment should be considered as part of your overall investment plan and stepping stone to your future.
What is an investment loan?
An investment property loan in Australia is a type of loan designed to help finance the purchase of a residential or commercial property for the purpose of generating income. It allows investors to purchase properties to use as rental or short-term accommodation, either for long-term capital gain or for regular income.
You can take out a loan on investment property from banks, credit unions, building societies and many other lenders, including online lenders.
Property investment loan rates tend to be higher than traditional home loans due to the increased risk associated with borrowing for investment property. The size of the deposit required for your investment property may vary depending on the lender’s policies and the borrower’s credit history.
The benefits of investment property loans
Flexibility
Select from a variety of payment plans and adjustable interest rates that best suit your needs. Get greater control over cash flow and invest more or less when needed
Tax Benefits
Mortgage interest can be deducted from taxable income. Capital gains earned on the sale of an investment property are taxed at a lower rate than ordinary income
Higher Returns
Property values typically rise over time. Potential appreciation in value allows investors to get higher returns than other traditional investments like stocks and bonds
Equity Buildup
As you make regular payments towards your loan balance and the value of the property appreciates over time, this can significantly increase your overall net worth faster than if you had purchased outright with cash or debt-free with no loan attached.
Access to Expert Advice
Get help from experienced professionals within the industry, i.e., finance brokers, who can help guide you through all aspects including selecting suitable properties, negotiating terms and understanding associated fees and charges.
How to buy investment property: Qualifications and the Application process
The lending criteria when borrowing for investment property is more strict and this is so banks and lending institutions can minimise their risks.
You need to have:
- 5% to 10% genuine savings
- A solid employment history
- An above average credit history
- Savings account with aged funds
- A low debt to income ratio
Below are the documents you will need to submit for your investment loan application:
1. Proof of Identity: This can include a valid driver’s license, passport or other government-issued identification.
2. Proof of Employment and Income: Most lenders also require proof of employment such as payslips and our PAYG income summary in order to confirm that you have a stable source of income that can be used to repay the loan in full over time.
If you are self-employed, there are specific documents that you need to submit in order to apply for an investment loan. These include personal and business financial information, such as tax returns, income statements, balance sheets, profit and loss statements and bank statements. Additionally, lenders may require a copy of your business license or other documentation to verify the type of business you operate as well as any government contracts you may have.
3. Financial Statements: Bank statements, income tax returns and other financial documents are necessary to demonstrate your ability to repay the loan. These should be kept up-to-date and submitted with your application.
4. Credit Report: A credit report is typically used by lenders to determine your creditworthiness and help them decide whether or not they should approve the loan request. Working with the brokers at ZEP Finance will save you time on this front as we order current credit reports for all our clients.
5. Collateral Documents: If you are using collateral as part of your investment plan, then you need to provide documentation that proves ownership of whatever asset is being used as collateral (such as real estate deeds).
Things to Consider When Taking Out an Investment Property Loan
1. Be aware of the different types of loan products.
Investment property loans in Australia offer a variety of options for individuals and businesses looking to purchase or develop real estate for future use. The most common types of investment property loan are:
- Owner-occupier loans are designed to allow investors to secure a property while they are living in it.
- Equity release loans give borrowers access to funds from their current mortgage that would otherwise remain locked away until the loan is repaid.
- Bridging finance is used when a borrower needs short-term funding between purchasing one investment property and selling another one.
- Construction loans are designed specifically for developers who are planning on building or renovating existing properties into multiple dwellings or apartments that will be rented out as investments.
- Commercial and development finance are specifically tailored towards larger projects. These include office blocks, shopping centres, warehouses, factories and more which will ultimately generate income for the borrower through rent payments from tenants occupying those buildings once complete.
2. Costs associated with borrowing for investment property:
Upfront costs:
- Stamp duty
- Conveyancing fees
- Legal costs
- Search fees
- Pest and building reports
Ongoing costs:
- Council and water rates
- Building insurance
- Landlord insurance
- Body corporate fees
- Land tax
- Property management fees (if you use an agent)
- Repairs and maintenance costs
3. Factor in the potential tax implications.
Different loan structures can provide different tax deductions and benefits so careful consideration should be given when selecting a lender.
It is important to speak to a qualified accountant or financial planner prior to taking out a loan so you understand any potential taxation benefits or liabilities that may arise from your chosen structure.
4. Do your due diligence of researching and studying the real estate market.
You should review the current economic climate and possible future trends which can affect your investments. These factors include changes in property prices, unemployment rates and interest rates before entering into any agreements with a lender.
You can protect yourself and your investment property from the potential risks associated with this type of venture when you study and understand the industry thoroughly.
5. Assess your financial situation
Finally, assess your financial capability both now, and over time as investments change throughout their lifetime. Looking at your cash flow situation and mitigating any potential risks associated with repaying debt will assist in setting up a successful investment strategy.
The most effective way to do this is by seeking professional advice from qualified finance brokers who specialise in finance for property investments in Australia.
You can draw out equity from your existing property to use as a deposit for your new investment.
FAQs on Investment Property Loans
Investment property loans in Australia are typically offered as variable rate or fixed rate, depending on the borrower’s preference. Variable rate home loans allow borrowers to benefit from any interest rate reductions, while fixed rates offer a degree of certainty and can help to minimise potential payment increases. Additionally, split loan products are also available as a combination of variable and fixed rates.
The amount that you can borrow will depend on a number of factors such as your income, assets and credit history. Generally speaking, lenders may lend up to 80% of the purchase price or value of the property (whichever is lower). However, this percentage may be higher depending on your circumstances. It may be possible to secure additional funds through other means such as using equity from an existing property.
Yes. Some lenders place restrictions on investment properties that they finance including minimum rental returns or maximum number of bedrooms that are allowed. It’s important to read all terms and conditions carefully so you know what restrictions apply before committing to a particular loan product. Additionally, most lenders require that the borrower has held an Australian residential mortgage for at least six months prior to approving an application for an investment property loan.
An investment property loan is used for the purchase of an asset that generates rental income. A home loan is used to purchase a residential property which will be your primary residence. Investment loans often have different criteria compared to home loans, such as different down payment requirements and higher interest rates. However they may also offer tax benefits for investors.
Yes, many borrowers utilise equity from their existing properties by refinancing these assets during the application process. This is to increase their buying power when acquiring more properties or increasing their own individual borrowing capacity. Doing so lets them purchase larger valued investments down the track if desired.
Why go with the investment loans brokers at ZEP Finance
Best rate
We will research the market, compare rates from various banks and lenders, and negotiate for the best loan that suit your needs on your behalf
Stress less
We do everything for you! We believe borrowers should be able to enjoy a simple application process simple. Relax as we manage the paperwork for you from application right through to settlement.
Expert advice
You have us at your disposal for any of your questions about the loan process. Your current financial situation will be assessed, and we’ll provide expert advice on how best to achieve that building goal.
Reviews for ZEP Finance
