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Investment property loans
Investing in property can provide you with a regular rental income, give you potential tax benefits, and allow you to reap the potential benefits of capital gains in property over time.
Serviceability
There are numerous factors that influence a borrower’s capacity to purchase an investment property including income levels, existing liabilities and rental expense, potential rental income level from the proposed investment purchase, and any allowable tax deductions. Calculating serviceability (whether a borrowercan afford a proposed loan without undue financial hardship) is more complicated for investment property purchases due to the number of contributing elements and because lenders treat these various elements differently. Some lenders allow higher negative gearing benefits to be used within their serviceability calculators. Other lenders may be more lenient in servicing for applicants with low or no ongoing rental expense, or may treat other existing debts more or less favourably. Our software allows us to calculate your investment property capacity quickly with the main Australian lenders. Please call us on 02-9210-1000 to get more information or complete our short loan enquiry page and we will send a full assessment your capacity by email.
The following are a few common scenarios for prospective investment property purchases …
Use Equity In Your Existing Property To Purchase An Investment
Borrowers who currently own property may be able to use any existing equity in their property to assist in purchasing a new investment property. If there is sufficient equity in existing property, borrowers may be able to arrange a loan to cover all costs taking away the need to make any cash contribution of their own. If borrowers have a large amount equity in existing property, they may even be a be able to arrange an investment property loan secured just on the existing property. This may allow the new purchase to be unencumbered and may allow the new investment loan to be fully approved and drawdown even prior to the investment property purchase.
First Time Entry To The Property Market
Borrowers might also consider buying an investment property as a first ever purchase to enter into the property market.For borrowers with low or no rental expense, purchasing a property as an investment may allow a higher borrowing capacity due to the ability for lenders to factor in the potential rental income of the prospective investment purchase,and any potential tax concessions available to the borrower. This could allow a higher borrowing capacity which could be kept as an investment, or to which an investor could potentially move into at a later date in the future once income improves.
Government first home buyer benefits are generally not available for investment property purchases, however there may be certain circumstances where some first home buyer benefits may still be claimable in the future.
Other Considerations
Tax concessions
An additional bonus of investment property is that tax concessions may be available to you on any overall loss generated by the investment property each year. This is called negative gearing and the Australian Tax Office may allow the loss on an investment property to be offset against other income earned. To calculate the effects of negative gearing you can ask Home Loan Advice Centre to assess your investment property purchase capacity and then liaise with your accountant about how the negative gearing rules would work in your situation.
Interest rates
Many lenders set different interest rates for different loan types. Investment property loan interest rates are generally a little higher that owner occupied loan interest rates.
If you currently own a property you may be able to use your existing equity to assist in purchasing a new investment property. If you have sufficient equity you also may be able to arrange a loan to cover all costs taking away the need to make any contribution of your own. Home Loan Advice Centre is able to assess you situation to determine your capacity. The potential rental income from your new investment adds to your existing income so you may not have to earn a large salary to be able to get into the investor market!
Are you looking to enter into the property market yet don’t quite earn the income required to get your desired property? You might want to consider making your first property purchase an investment property. There may be advantages for you as potential rental income on the purchase may be used and different lenders also can take future tax concessions into account. This could make your borrowing capacity much higher and allow you to purchase a more desirable property now, which you could keep as an investment or move into at a later date.
The first home owners grant however is generally not available for investment property purchases, however there are certain situations when you can claim it so please talk to us about this.
NSW disposed of the 2% vendor duty tax in August 2005 and mortgage stamp duties on all property loans in July 2008. Other states have a variety of duties payable on investment property transactions. Please call Home Loan Advice Centre on 02-9210-1000 for state specific information.
An additional bonus of investment property is that tax deductions may be available to you. In general, you may be eligible to generate a tax concession on any losses incurred on the ownership ofinvestment property. After talking with Home Loan Advice Centre about what cost price you can acheive, an accountant is best able to advise and assist you with this.
Different lenders allow us to utilise your income in different ways. Some lenders allow 100% of your rental income to be used. Also there are lenders who allow us to include your forecast tax concessions in assessing serviceability. These differing factors between the banks can determine how much they will lend you. With our knowledge and experience on lender servicing rules, we can look at your situation and fit you with the best loan for your needs.