Property Investment Loans
Funding an Investment Property Mortgage
News Flash! An investment property is not your primary place of residence.
Obvious! Maybe… and yes, over time you will create equity in the family home. Equity which you can leverage for other things you want in your life, but it’s hardly the fast track to financial freedom.
The truth is purchasing an investment property is a good way to accelerate your wealth building strategy.
Perhaps investing in property could be your next step. So, if you are wondering if this could be right for you and want to discuss the pros and cons, call Our Mortgage Options on 1300 700 496.
- How much will you need?
- What do you need to consider?
- What is SMSF property?
- Could a Deposit Bond be the solution?
How Much Will You Need?
In general, investment properties can be purchased with as little as 5 – 10% deposit, however at these levels you will attract Lenders Mortgage Insurance.
Having a deposit beyond 20% will remove the need for LMI (Lenders Mortgage Insurance). But if your available cash is a little short of the required deposit, some creative reshuffling of your equity could help you realise the difference.
Now please understand… we don’t know your specific circumstances so you should give us a call if you are thinking this way. We can look at your financial position and offer some free guidance.
But just so you know, your ability to repay your investment loan will be supported by the rental income from the property you purchase. And all lenders will take this into consideration when you apply for the investment property mortgage.
Most people purchase an investment property with the specific intent of making a residual income.
What Do You Need to Consider Before Taking An Investment Property Mortgage?
Here are some things you will need to consider when you are looking to buy an investment property:
- Loan application fees
- Valuation fees
- Building and pest inspections
- Stamp duty and other statutory government charges
- Conveyancing and legal fees
- Lenders Mortgage Insurance if you are borrowing more than 80% of the property value
There are a few other things which will generate good capital growth, give you consistent tenancy and help to give the lender more comfort when you approach them for a loan.
- The location of the property
- The demographics of the area (which indicates the suitability for the type of tenant you are targeting)
- How close your potential property is to public transport, schools, shops and cafes
- Is there any future development planned for the area which will impact the value of your investment property, both positively and negatively.
These are all things which can help you to make an informed decision… and when you are talking to your “Our Mortgage Options” broker, you will be well versed to answer their questions authoritatively and with confidence.
Remember, your investment property needs to be fit for purpose. Don’t fall into the trap of choosing a property just because it looks lovely. This is a business decision. Make sure you treat it this way and you will be rewarded with the income you are looking for.
What is SMSF Property?
Well, it’s your ticket to using your super to invest in bricks and mortar through a Self Managed Super Fund (SMSF).
You see, not so long ago there was little you could do with your mounting compulsory retirement fund other than hope the managers of the fund would be conservative enough to make the most out of the opportunities which their wealth creation strategies brought to them and yet aggressive enough to take control when needed.
The options are far more open these days due to changes in the law surrounding your superannuation. These changes are concerned with Self Managed Super Funds and property investment.
Changes in legislation back in 2008 allowed SMSF’s to borrow money to buy property. Investors have embraced this change because they can now invest in property using their Super Funds instead of as individuals.
These days financial institutions have special provisions surrounding Superannuation Fund loans and will generally lend up to 80% of the value of the property to a Super Fund.
Are you beginning to see the leverage?
Call us on 1300 700 496 if you would like to look into this option further.
Investing in real estate using a Self Managed Super Fund is becoming increasingly popular because it offers many more tax advantages than traditional real estate investing.
There are incentives like:
15% tax maximum on all rental income which your investment property generates.
Capital Gains Tax is greatly reduced when you sell your investment property.
As per normal when you own an investment property, you can claim interest and deductions on property related expenditure.
Some property investors choose to start a Self Managed Super Fund using as little as $50,000 but a typical Self-Managed Super Fund is started with around $200,000 to $250,000 with funds rolled over from their Managed Super fund.
But just like all other forms of lending, when looking for a Superannuation Fund loan to invest in property, not all lenders are the same. The variations between institutions can be big and some of them even have specific products designed to meet the SMSF requirements.
It’s important to be aware that the features vary a lot. At Our Mortgage Options, we make it our business to be well versed on SMSF loan packages. We can show you what is available and help you to choose the loan most suitable to your circumstances.
Could a Deposit Bond be the solution to the investment property mortgage?
Sometimes there are circumstances where a buyer does not have the ready cash to be able to pay the minimum deposit which the vendor requires. When this happens, both the vendor and the buyer miss out on the opportunity.
In this situation Deposit Bonds can be very helpful.
A Deposit Bond is an insurance policy which makes sure that if the sale doesn’t go ahead, the deposit will still be paid to the vendor. You see, under normal circumstances the buyer loses the deposit monies when a sale doesn’t go ahead, so the Deposit Bond used in a “no money down” situation protects the interests of the seller.
The Deposit Bond is a document which binds the buyer to pay the agreed deposit amount to the seller in the event of the sale not going ahead.
No money actually changes hands initially but the purchase price (including the deposit) is paid in full on settlement. Once the full purchase price is paid, the Deposit Bond lapses and is no longer binding.
It should be noted that not all sellers will agree to a deposit bond. This is mostly due to them not knowing how a deposit bond works. So be careful how you approach this subject if you are considering this option.
Our Mortgage Options can help you here but just be aware that not all sales will be open to this strategy. Often times the seller will be looking for a solid cash commitment.