Bruce's Blog

Buying an Investment Property

Fri, Oct 9th 2009, 17:24

If you have cash for a deposit or good equity in your own home you may be considering buying an investment property.  Alternatively, you may want to buy a new home and keep the existing one for rental.

Rental returns are quite high at present and the low vacancy rates suggest they will hold.

There are a number of factors to consider when choosing a mortgage for your investment property:

  •  Tax considerations

    When borrowing for any investment property, the interest costs can be claimed as a tax deductible expense against income. Your loan(s) will need to be structured to ensure you have the optimum benefit.
  • Fixed vs. Variable vs. Capped interest mortgages

    This can be tailored to individual requirements - keeping in mind that there is no one option that suits everyone.  There is a new loan for the residential property market which offers a variable rate with a cap for 3 years - that is, it will not go over the cap rate during that time.

  • Stand alone vs. cross securitisation with existing property

    If you have equity in your existing home, you can use this as security for the investment property. Alternatively, for those who have sufficient redraw balance, this can be used as a deposit in conjunction with a standalone loan from the same or different lender.

  • If borrowing is greater than 80% of property value, what mortgage insurance charges are incurred?

    If the loans and securities are coupled then mortage insurance is on total borrowings not just the new loan will be payable.

  • Stay with one lender or diversify?

    Having a stand alone property and mortgage with a different lender to one you may already have borrowings with, may suit some investors who do not want one lender to have or be aware of all their financial dealings.

  • Amount of rental allowed as income

    In calculating loan serviceability (your borrowing capacity), lenders discount rental income to allow for fees, maintainence and possible loss of rent betwen leases.  While most will use 80%, some use lower rates which could affect your future borrowing from that lender.

 

If you have any further questions about investment property finance, feel free to contact me via this page or directly on 0404 884 002.