Buying an investment property can be a rewarding way to build wealth through rental income and capital growth. However, securing the right financing requires understanding how investment loans differ from standard home loans and what lenders look for when assessing applications.
Understanding Investment Loan Options
When you're looking to invest in real estate, you'll need to access investment loan options from banks and lenders across Australia. Investment property loans typically have different criteria compared to owner-occupier loans, including:
• Higher interest rates than standard home loans
• Different loan to value ratio (LVR) requirements
• Stricter borrowing capacity assessments
• Additional fees and charges
Most lenders offer both variable interest rate and fixed interest rate options for investment loans. Your choice will depend on your risk tolerance and market outlook.
Property Types and Investment Strategies
When buying a rental property, you can choose from various property types:
• Stand alone dwelling
• Town house
• Apartment
• Unit or villa
Each property type has different considerations for rental yield and capital growth potential. Research property markets thoroughly and consider factors like location, tenant demand, and local infrastructure development.
The Application Process
Applying for an investment loan involves a detailed assessment of your financial position. Lenders will review:
- Income verification - Including pay slips and bank statements
- Existing debts and commitments
- Property details and rental potential
- Your overall investment property portfolio
- Deposit amount and borrowing capacity
Loan Amount and Deposit Requirements
Most lenders require a minimum 20% deposit for investment properties to avoid lenders mortgage insurance (LMI). However, some lenders may accept lower deposits with LMI added to the loan amount. The maximum LVR for investment loans is typically 90%, though many investors aim for 80% to avoid additional costs.
Interest Rates and Repayment Options
Investment loan interest rates are generally higher than owner-occupier rates. When calculating investment loan repayments, consider:
• Principal and interest vs interest-only repayments
• Potential interest rate discounts based on your relationship with the lender
• The impact of rental income on your cash flow
• Tax implications including negative gearing benefits
Property Investment Strategy Considerations
A successful property investment strategy involves more than just securing finance. Consider:
Rental Yield Calculations
Calculate both gross and net rental yields to understand your property's income potential. Factor in expenses like property management, maintenance, insurance, and council rates.
Negative Gearing Benefits
Many investors utilise negative gearing, where rental income is less than loan repayments and expenses. This creates a tax-deductible loss that can offset other income.
Market Research
Thoroughly research property markets in your target areas. Consider factors like population growth, employment opportunities, infrastructure development, and rental demand.
Additional Costs to Consider
When buying an investment property, budget for additional costs including:
• Stamp duty (varies by state)
• Legal and conveyancing fees
• Building and pest inspections
• Property management fees
• Ongoing maintenance and repairs
• Insurance premiums
Investment Property Loan Features
Modern investment property loans often include features like:
• Offset accounts to reduce interest charges
• Redraw facilities for accessing extra repayments
• Streamlined application processes for experienced investors
• Portfolio lending for multiple properties
• Professional packaging for complex financial situations
First Investment Property Considerations
If you're purchasing your first investment property, take time to understand:
• How investment loans affect your borrowing capacity for future purchases
• The importance of maintaining detailed financial records
• Tax implications and the benefits of professional advice
• Property management options if you don't want to self-manage
Working with Mortgage Brokers
A qualified mortgage broker can help you access a wider range of lenders and loan products. They can assist with comparing interest rates, loan features, and finding solutions that match your investment goals and financial situation.
At Empire Road Investments, we understand that each investor's situation is unique. Our team can help you explore various investment loan options and work through the application process to find suitable financing solutions for your property investment journey.
Call one of our team or book an appointment at a time that works for you to discuss your investment property financing needs.