It’s a big topic of conversation at dinner parties and a component of the Australian’s dream. One of the most popular ways to safeguard your financial future is through property investment, particularly in the Australian market where property values have gradually climbed over the previous ten years.
It also makes sense that many Australians have made buying an investment property a priority because they want to take advantage of capital growth and/or the additional rental income that property management can produce.
We’ll discuss some aspects of purchasing an investment property in this blog post.
Unlike buying a home to live in, an investment property is usually bought with the goal of making money. Investing in property is a popular way to invest money in Australia, but before starting, think about whether it fits with your circumstances.
An investment property is any real estate property that has been purchased with the intention of gaining a return (profit) on the investment. This might be through rental income in the short term or resale of the property in the long term – or both.
Purchasing a home to live in is not all that different from purchasing an investment property. For information on what’s available for sale in the places you’re considering, consult local and internet real estate listings for the area in which you want to buy, or ask a real estate agent.
When it comes to gaining clearance from your bank, you could find that buying an owner-occupied property differs from buying an investment property. When it comes to approving loans for investments, lenders typically have stricter requirements. For both interest-only and principal-and-interest(P&I) loans, investors often pay a higher interest rate.
To make sure your investment property will generate a decent rental return, strong rental yield, or both, you need to think carefully about the neighbourhood and the sort of property you’re buying before making a purchase.
Before making a purchase, you should give careful consideration to the neighbourhood and the type of property you’re buying to ensure that your investment property will produce a respectable rental return, a significant rental yield, or both.
If you buy a second home but don’t intend to reside in it, you may consider it as an investment property and aim to gain returns through renting it out or selling it at a higher price. However, if you plan to live in it, it becomes an owner-occupier property, and you won’t be able to claim any capital gains from it. Essentially, the classification of the property as an investment or owner-occupier property depends on your intention and purpose for owning it.
For a first-time investor, you’ll need a minimum 5% deposit (and maybe more, depending on the lender), as well as additional cash for fees and taxes like stamp duty.
When buying a new property, investors who already own one or more properties typically take out a 20% deposit from the equity they’ve built up in one of their current properties.
As a result, they will not need to pay Lenders Mortgage Insurance (LMI). LMI is insurance obtained by lenders to safeguard them in the event that a borrower defaults on the loan. If the amount borrowed exceeds 80% of the value of the mortgaged property, the lender will often impose a one-time fee on the borrower to cover the cost of this insurance.
Is your investment property livable?
If you live in your investment property then it becomes your principle place of residence and is no longer an investment property. Even if you do so for a short period of time, you will need to declare it to the tax office as any expenses (see below) you spend on the property will no longer be tax deductible.
Investment property owners may qualify for various tax deductions such as property management fees, repairs, insurance, mortgage interest, and depreciation. Understanding tax laws and regulations is crucial to maximize deductions and avoid legal problems.
Various tax deductions are available for investment property owners, which are elaborated on below.
Property investors can claim a number of expenses on their property; including:
Interest expenses, which includes the interest charged on the loan you used to:
Property flippers are those who only purchase homes with the goal of renovating and reselling them. You can claim your net profit or loss from the refurbishment on your income tax return. This is calculated as the revenues from the sale of the property less the purchase price and other costs related to buying, holding, renovating, and selling it.
You can also do this if you buy a house as an investment and intend to refurbish and sell it later. Your net gain or loss from any improvements you make to the property is taxed as a capital gain or loss if you are regarded as a real estate investor for tax purposes.
When your investment’s operating expenses and any interest payments exceed the income it generates, this is referred to as negative gearing. For instance, if you charge your tenant $500 per week in rent but pay $600 in mortgage payments, you are losing $100 per week.
The ability to deduct the net loss from taxes makes negative gearing a desirable choice for investors. Additionally, you may count on the property’s value rising over time, which will offset the loss of rental income. For example: You will be taxed on the gain if your property is positively geared, which means that your rental income exceeds your repayment income.
As an investor, you can usually borrow up to 95% of the purchase price. This means you will need a deposit that is 5% of the purchase price. In general, the less you borrow, the less risk you pose to the lender, and the more likely it is that you will be approved.
It’s important to have a clear idea of your goals and budget. Once you’ve established these, start researching the market to understand the potential of different locations, types of properties, and rental demand. Analyze the financial aspects, including expenses, potential returns, and risks.ying an investment property:
Here are some tips to follow when purchasing an investment property:
Consider the realities of property investment alongside its potential benefits. Make sure you can cover your loan repayments without greatly affecting your lifestyle, and whether you’re comfortable with the risks involved, such as a possible drop in market value or significant interest rate rises
If you’re looking for an apartment or a house, or a particular suburb, research how much you can afford to borrow with an investment loan.Decide whether you’re buying to generate an income now, or as a longer-term investment. Then research the property’s potential for capital growth, rental income and ongoing costs.
Lenders typically ask for a minimum deposit of between 10% and 20%. You’ll also need enough upfront cash for things such as stamp duty, legal and conveyancing fees, insurances, maintenance, and interest on borrowings.Consider how the cost of your borrowings could impact your investment, and also look at your interest rate loan options and how they might fluctuate. You could also consider taking a ‘fixed rate’ loan for at least part of your borrowing, this will ‘lock in’ part of the interest expense for a period of time.
Nfinity Financials is committed to helping property investors find the best loan deals to finance their investment properties. Our team of expert mortgage professionals works with a large panel of lenders to ensure that you get the best loan offers based on your circumstances.
Different lenders have different criteria for lending, and the amount you can borrow varies depending on several factors. Our brokers understand the lending policies of each lender and will work with you to find the right lender that suits your borrowing capacity. We stay updated with the latest lending trends and communicate with lenders regularly to present you with the best loan options available.
Our goal is to ensure that your loans are structured in a way that benefits you the most, and we are happy to liaise with your financial adviser to achieve this. With Nfinity Financials, you can rest assured that you are getting the best loan deal for your investment property.
At Nfinity Financials, we understand that every borrower is unique. That’s why we offer a range of home loan options tailored to your individual needs, whether you’re a first-time buyer or an experienced property investor. From fixed and variable rate mortgages to investment property loans, our experienced mortgage experts are here to guide you through the process and help you find the perfect loan for your situation. Visit nfinityfinancials.com or call us at 1300 GETLOAN to get started today and enjoy competitive rates and personalized service.