Investment Propety Loan

 

Australians love bricks and mortar, and investing in property is a popular wealth creation strategy. Your reasons to invest might range from earning profit from the property’s capital growth, supplementing your income with rent from an investment property, or negative gearing and taking advantage of tax benefits. You might also want to use the equity in your home to build a nest egg for retirement, or buy an investment property with your Self Managed Super Fund.

 

Thinking long-term is the key to investing well – so you’ll want to choose an investment property likely to offer capital growth.  You’ll need to consider what you can afford to buy, the area and how it will impact your rental returns, and whether the property has features and amenities that appeal to both buyers and renters.

 

Getting a home loan that suits you is an important part of your investment strategy. The right investment loan that suits you can help you save on fees and interest charges, with features like Interest in Advance. A line of credit can make it easy to diversify and manage your investments, with separate sub-accounts for each investment and no need to apply for a new loan every time you want to invest. 

 

Positive Gearing vs Negative Gearing

Positive gearing is when the rent from your investment property is higher than costs such as loan repayments, interest, property maintenance and rates. It tends to happen at times when rental rates are high and interest rates are low.  

 

Negative gearing occurs when the expenses on your investment are higher than the income you receive. As your investment is making a loss, you may be able to offset your expenses against other income such as salary or wages, potentially reducing your tax.

 

Negative gearing can be more risky than positive gearing and is only recommended when capital gains are expected in the long-term. If the value of your property falls or interest rates increase, you may need to pay additional costs that aren’t covered by potential tax deductions.  However, finding positively geared property is not so easily achieved in many markets around the country. A lot of investors are wary of high risk, high return areas (eg mining towns) where high rental yields can be achieved. These high returns from the rent can also be eroded by unexpected expenses.

 

The Pros and Cons of positive gearing investment.

The Pros

• Receipt of a larger monthly income stream after paying expenses.

• Positive Cashflow properties can balance your portfolio - the with extra cash being used to pay the shortfall associated with holding negatively geared properties.

• By increasing your serviceability Positive cash flow properties and can make you a more attractive to proposition to lenders. 

• If your circumstances change, eg. You lose your job, the property is not a drag on your reduced income that potentially could force you to have to sell at a bad time.

The Cons

• Cash flow positive properties are sometimes associated with lower levels of capital growth over the longer term. This is not always the case but has been more often than not and will vary from property to property. 

• The positive income generated is taxable adding to your own income tax liability. Without growth it can be difficult to build real wealth off income alone especially if it’s being taxed.

 

Claimable Expense on Investment Property

• Advertising for tenants

• Insurance

• Some legal expenses

• Body corporate fees and charges

• Property agent fees and commissions, as well as travel costs to inspect the property

• Land tax

• Capital works and decline in value of depreciating assets

• Repairs and maintenance

• Cleaning, pest control, gardening and lawn mowing

• Council and water rates.

 

 

Some costs can be claimed immediately and others can be claimed as depreciation over a number of years. You’ll need to keep records of all expenses, plus legal records of property ownership for at least five years.

Visit the Australian Tax Office (ATO) for the latest information on what you can claim, or talk to your accountant for tax advice that’s specific to your situation.

 

Foreign Investor & Non-Resident

Non-residents can also borrow from selected lender to fund their investment properties in Australia.  However the credit criteria for non-resident loan will be different to a standard home loan.  Not every banker or broker is familiar with this type of loan.  Our loan experts have great experience dealing with non-resident and foreign investor loan.  Contact us now for your inquiry.