Property in Australia is generally considered to be a sound investment due to steady and consistent increases over time. But it’s not a quick win, and property tends to be a long-term investment. To help maximise your returns, it is important to have the right loan features and structure in place.
Take the time and hassle out of finding the right home loan, and let us do the hard work for you. As a property investor, there are many factors and loan features to consider that will be different to your personal home loan. Do you want interest only repayments to assist with cashflow? Should you use your home as security for the investment property, or have them separate? How will these decisions impact your borrowing capacity?
We can support you to navigate through the entire loan process, provide tips, and answer any queries you may have along the way. We will also help determine an appropriate loan structure, and find the right loan that will help you achieve your financial goals.
Unit or house?
House prices often increase in bigger strides than units, offering more potential for capital gain over time. But an investment home also comes with added responsibilities and overheads, including gardens and lawns to maintain.
A unit may not increase in value as quickly, but they are generally easier to maintain. Rental yield is generally higher for a unit compared to a house, meaning better cashflow to make interest repayments.
Of course, you’ve heard this before. But location can mean different things when it comes to rental properties. Renters are often looking for maximum convenience so consider properties near schools, major shopping centres and public transport.
Spend plenty of time researching target areas, including recent property price movements and future predictions, rental vacancy rates and any proposed infrastructure improvements. You should also do some scouting as if you were a renter to get a first-hand look at the local market.
Remove the emotion
One of the worst mistakes you can make with any investment is to buy with your heart instead of your head. Remember, your rental property is not your ‘home sweet home’.
A well-presented property is desirable, but think sensible, not swank.
Ideally, you want a neutral interior colour scheme, serviceable and resilient flooring and window coverings, a low-maintenance yard and good storage. And if buying an older style unit, look for one with an internal laundry, a garage or car space and few stairs.
Don’t forget the extras
An investment property requires regular financial commitment beyond the loan repayments. Make sure you have the capacity to cover land and water rates and any maintenance and repair costs. Tenants are entitled to repairs or replacements as quickly as possible under their rental agreement, so you will need to have the means to pay.
Apartments or units also come with body corporate fees, which can be thousands of dollars per year in some modern complexes with professional landscaping and shared amenities, such as swimming pools.
Cover your investment
Make sure you take out landlord’s insurance. This will cover you for damage caused by a tenant and unpaid rent if a tenant skips out, in addition to other standard risks, such as a house fire or a storm.
If you invest in a strata title property, make sure the body corporate has sufficient building insurance to cover the cost of rebuilding the complex in today’s prices. It’s often hard to work out what you need to cover versus what the body corporate covers. A good rule of thumb is everything from the wall paint inward is yours and everything outside of that is covered by the body corporate.
Many property investors take advantage of interest-only loans because interest payments are tax deductible. However keep in mind that many lenders are charging higher rates for interest only loans, so it may not be suitable for everyone.
Just remember, you will pay tax on any income from your investment. Talk to your accountant about your tax situation so we can help you find the right loan.
Manage your investment
Managing a property takes time and energy. If you don’t have much to spare of either, you should get a professional property manager to advertise the rental, screen and select tenants, collect the rent, co-ordinate repairs and maintenance, provide condition reports and manage any disputes. Ask around for referrals for reputable managers.
If you decide to self-manage, you will need to be well-versed on tenancy laws and prepared to organise repairs, including those that arise after hours.
The ATO will give you a discount off your tax bill for wear and tear on property. It’s known as depreciation, and can be a very handy windfall for investors, especially if you buy a new property.
The formula is quite complex and depends on the age of your property, building materials and the various fittings. That’s where a professional quantity surveyor comes in. For a fee (often around $600), they’ll assess the property and complete a Tax Depreciation Schedule, which your accountant will incorporate in your tax return.
Why invest in property?
- Capital growth: Capital growth is the increase in value of property over time and the long term average growth rate for Australian residential property is about 9% a year.
- Rental income: Rental income is the rent an investment property generates. As a general rule, those properties producing a lower rental yield will often deliver greater capital growth over the long term.
- Tax benefits: The Federal Government may allow tax deductions for some losses you incur from owning an investment property. Given tax rules change often, speak to your accountant to find out the tax benefits that could apply to you.
- Low volatility: Property values generally fluctuate less than the stock market. Many investors say they experience greater peace of mind for this reason.
- Leverage: Property enables far greater leverage than many other investments. For example, if you have $100,000 in savings, you could invest it in a portfolio of shares, or use it to buy a property worth $500,000 by taking out a mortgage for $400,000. If shares go up by 10% during the year, your share portfolio would be worth $110,000 and you would have gained $10,000. If property goes up by 10% during that same year, your property would be worth $550,000 and you would have gained $50,000.
- You don’t need a big salary to invest: If you are buying to invest, lenders will take rental income as well as your own base income into their assessment. If you already own your home and have some equity in it, you may be able to use this as a deposit, meaning that you can buy an investment property without having to find any additional cash. If you don’t own your home and feel you may never be able to afford one, buying an investment property may be a good stepping stone to one day being able to afford your own home.
How much money can I borrow?
We’re all unique when it comes to our finances and borrowing needs. Contact us today, we can help with calculations based on your circumstances
How do I choose a loan that’s right for me?
Our summary of loan types and features will help you learn about the main options. There are hundreds of different home loans available, so let us provide a short-list of the most suitable loans for your individual needs.
How much do I need for a deposit?
Usually a minimum of 10% of the value of a property, which you pay when signing a Contract of Sale. Speak with us to discuss your options for a deposit. You may be able to borrow against the equity in your existing home or an investment property.
How much will regular repayments be?
Your repayments will depend on the loan size, interest rate, and repayment type on your home loan. Contact us today, so we can help with calculations based on your circumstances.
How often do I make home loan repayments — weekly, fortnightly or monthly?
Most lenders offer flexible repayment options to suit your pay cycle. Aim for weekly or fortnightly repayments, instead of monthly, as you will make more payments in a year, which will shave dollars and time off your loan.
What fees/costs should I budget for?
There are a number of fees involved when buying a property. To avoid any surprises, the list below sets out all of the usual costs: