investment property loan: loans for investment property

how to source and structure the right investment property loan...

We help self-employed business owners and People with Uncoventional Lending Circumstances source and structure better finance, so you can potentially save thousands in interest & fees...

getting an investment property loan...

when you're self-emplohyed or have unconventional lending circumstances can be tricky...

Like many self-employed business owners looking for a home loan, are you…

Too busy to compare dozens of loans from multiple lenders to ensure you get the right option for your situation… and wish you had a trustworthy expert to do all the legwork for you?

Worried about getting declined (and having your credit rating damaged), and wish you had someone to help you get approved the first time?

Concerned your local bank or broker may not have the product options (or expertise) to help you structure your loan for maximum borrowing capacity, and flexibility?

Unsure if your current loan is the right one for you, right now… and want a second opinion to make sure you’re not needlessly overpaying?

And like most self-employed business owners, are you looking for an easier way to get the right home loan, so you can get on with building your business and your life?

 

Investment Property Loans

Many self-employed business owners and people with Unconventional Lending Circumstances have these same questions and concerns. That’s why we developed a no-obligation Consultation where you can get the information you need to get fast approval for a better home loan.

inestment property loan: home loan options for investment property

Expanding the portfolio while earning income and paying low interest rates is the goal of every investor. Acquiring investment property in Sydney or other suitable places in Australia may be ideal.

As an example, Sydney could be an excellent opportunity due to its bustling harbour city with a cosmopolitan flair, a thriving economy, and well-developed transport systems, making it a lucrative prospect.

However, for the typical Australian investor, there are a lot of decisions ahead that some focus too much on actual property hunting. As a result, they lose sight of the loan search process until the last minute. But understanding the investment loan world is equally important.

You’ve got to find the right financing option for you. In this post, you’ll gain a better understanding of real estate investments and the different home loan options if you’re ready to acquire one. You’ll also learn how to choose the right investment home loan options for your situation and how to mitigate risks to make it a worthwhile investment.

Investing in real estate

Experts suggest that investing in residential properties such as apartments, townhouses, and detached homes can be profitable. The stability and demand for housing, combined with the potential for rental income and property appreciation, can make residential properties a good option for investors.

Commercial properties like retail spaces, office buildings, warehouses, and industrial properties also have excellent potential. They could bring in long-term leases and steady cash flow. Considering their potential for capital appreciation, too, commercial properties can yield substantial returns and diversify an investment portfolio even further.

Keep in mind that new properties offer more significant tax advantages through depreciation and are likely to require less maintenance but may come at a higher purchase price. Older properties, on the other hand, have character and potential for value-addition through renovation but may entail higher maintenance costs and potentially lower depreciation benefits.

Simply put, investment properties each come with pros and cons. To determine the best choice for you, you must consider your financial situation, risk tolerance, and long-term goals.

While selecting the right investment property is vital, choosing the appropriate financing method is equally important. After carefully weighing the advantages and disadvantages of different investment properties and evaluating your financial disposition, the next important step is to explore the available loan options.

Types of investment property loans

In Australia, self-employed individuals keen to invest into the property market have several investment home loans to consider, each with its unique pros and cons. Low-doc loans can be a popular choice. These loans are a blessing, as they require less paperwork and can offer faster approval times. However, this convenience often comes at a cost. Higher interest rates and more stringent lending conditions are common characteristics of low-doc loans.

Another option is the interest-only loan. These loans require the borrower to initially pay only the interest charges and then eventually the principal amount. This structure can offer lower initial repayments, providing valuable cash flow relief for an individual whose income might fluctuate. The potential tax benefits associated with interest only payments can also be advantageous.

However, these loans may not allow borrowers to build equity in their property during the interest-only period, and there is a risk that the borrower might face higher overall costs in the long run when they begin paying down the principal unless the value of the property increases.

Fixed-rate and variable-rate loans are also something that investors could consider. Fixed-rate loans provide a set interest rate for a specific period, offering predictability in repayments—a significant benefit for those whose income isn’t steady. On the downside, they can be inflexible. You can incur a penalty if you pay off the loan early and risk missing out on potential interest savings if rates fall.

Variable-rate loans, on the other hand, offer more flexibility and the potential to save if interest rates drop. Still, they come with the risk that increased rates could lead to higher, possibly unmanageable, repayments.

Acquiring an investment home loan as a self-employed individual

In Sydney and other areas in Australia, buying an investment property can be lucrative for self-employed individuals. It can generate passive income, and you may make enough to enjoy a financially free retirement. However, acquiring a loan with a self-employed investor status can be more challenging. Traditional lenders are often stringent with their requirements, making the application process intimidating.

Fortunately, there are loan experts who can help you secure the right loan structure for you. Ideally, the loan should be one where you have better chances of approval, increased ceiling, and fair interest rates while keeping your assets protected and your credit rating safe.

Consider the following factors before taking out an investment property loan as a self-employed individual and putting up your home or any property as collateral:

  • Understand your borrowing capacity

Before anything else, you need to know what you can afford. This involves carefully reviewing your income, expenses, and existing debt. Consulting a professional is crucial. They know best which lenders are more amenable to self-employed borrowers and can advise on the best products and strategies.

  • Keep your financial affairs in order

Clear documentation is a must! You usually have to show at least two years of financial statements, tax returns, and business records. Before applying for a loan, attempt to reduce debt and make sure you keep your repayments up to date to ensure a clean credit report.

  • Consider different home loan types and shop around for the right mortgage

Sourcing for the right loan may be challenging. Still, you can research independently or seek the opinion of a professional mortgage broker who can help you look for a suitable loan product and how to tailor it for your benefit. It is important to review the loan terms carefully to avoid paying more interest than necessary.

By taking the abovementioned factors into account when acquiring a loan, you can ensure that the choice you’ll make isn’t only something that fits your needs but also one that you can handle easily.

Setting up risks, mitigation, and other money-saving strategies

In taking out a loan for an investment property, unique risks are involved, so money-saving and mitigation strategies are extremely important.

For instance, lenders will allow you to use the property rental to repay the loan (typically 65%–90% of the rental income). As well as using the property rental to show that you can service the loan, either by using the existing rental or proposed rental income.

You may be able to tap into existing equity and borrow up to 105% of the value. It’s important to talk to a reliable mortgage broker for the best money-saving strategies available in your individual situation.

Some possible risks or challenges in investment property loans are variable income, documentation difficulties, property value decline, and debt service risk. For these factors, mitigation strategies are necessary.

Mitigation strategies include having substantial savings to tide the business over during lean months, choosing a loan structure with lower monthly payments but longer terms, going for a fixed-rate mortgage to lock in favourable rates, and having an accountant or a mortgage broker on board.

It is always recommended to seek professional advice, especially when it comes to legal and tax matters. However, one option you may wish to consider is using a legal structure such as a family trust or a self-managed super fund (SMSF) to hold the property.

This could potentially provide you with asset protection, legal and tax benefits. Lastly, consider taking out insurance, such as income protection insurance, to cover loan payments in case of illness or injury.

Selling your investment property

In case you are thinking about selling your investment property, there are a few things to keep in mind when preparing to do so.

  • Get professional help before selling your property!

The process of selling an investment property can vary from being simple to complex, and this is usually because the lender has a mortgage over the property.

In order to sell an investment property that has been secured by a loan, it is generally necessary to pay off the loan in full so that the mortgage can be discharged.

Although paying off the full amount of the loan is typically required to sell the property, there is another option if you have additional security or the ability to substitute the security.

Seeking advice from a qualified mortgage broker who will be familiar with the lenders requirements and other professionals who know the laws and regulations in each state in Australia is highly recommended.

  • Preparing the sale of your investment property

When it comes time to sell your investment property it’s always a good idea to speak with a professional real estate agent who knows the area well and has a good reputation, they will be able to provide recent sales data for comparable properties in your area.

Also consider selling when the market is strong to get the best possible price for your property.

  • Possible tax benefits

Provided that you have held your property for more than 12 months, you may be eligible for capital gains tax concessions from the Australia Taxation Office (ATO). However, as with anything related to tax, it is always advisable to seek the advice of a registered tax accountant.

Conclusion

If this is your first time taking out a loan for an investment property, expect to encounter numerous challenges and possible rejection. It’s especially true if you’re a self-employed individual. Consulting a mortgage broker can help remove the pain points so you may be able to secure loans for investment properties with more favourable terms.

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We help self-employed business owners and People with Uncoventional Lending Circumstances source and structure better finance...

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