Are you looking to grow your wealth through borrowing to invest?
Are you looking to reduce your taxes?
Investment Loan can be used for a variety of investments such as buying properties, shares, managed funds or other worthy investments
Take advantage of potential tax benefits such as Negative Gearing whereby interest charged on an investment loan may be tax deductible.
Many investors prefer to have interest only Investment Loans as this helps with monthly cashflow to better utilise their funds for other investments or expenses.
Looking to buy your first or next property by investing?
Your borrowing capacity is usually higher with an investment property loan, so you can firstly purchase your dream home to rent it out, then move in later when your financial situation is ready.
For Investment Loans, not only do Lenders have stricter lending policies, the criteria for loan approval are also more complicated than standard home loans, especially if Negative Gearing benefits are required to pass Loan Serviceability (that you can afford to service/pay the loan).
Let our expertise help find you the right lender for your situation and get your loan approved smoothly.
Investment Loan Security/Collateral
Investment Guarantor Loan:
If your parents can guarantee your loan using their property as collateral/security, then you can avoid paying LMI (Lenders Mortgage Insurance) and borrow 105% of the purchase price.
Using Your Property as Security:
If you own another property and there is enough usable Equity in it, then that Equity can be used as a deposit for your next investment purchase, and you can borrow up to 100% or 105% of the purchase price.
No security available:
If you have no security/collateral with Equity and no guarantor to guarantee the loan, you can only borrow up to 95% off the property value (95% LVR) and LMI (Lender Mortgage Insurance) will be payable.
Negative Gearing (Tax Reduction strategy)
It is recommended that you seek independent financial advice before borrowing money for an investment strategy.
Negative Gearing is when the associated expenses (including interest expenses) of an asset (not just housing,) are bigger than income earned from that asset.
When you borrow to invest and make a loss (due to your total interest and running costs amounting to more than your investment income at the end of the financial year), generally, this net loss can be claimed as tax deduction against your other income such as salary and wages. Your income tax reductions lessen the burden of the investment income not covering the expenses.
With time, the goal is to benefit from the investment asset rising in value (Capital Gain), plus the investment income rising bigger than the expenses (Positive Gearing). This strategy suits investors with a high taxable income, as the tax reduction and Capital Gain benefits would usually be bigger than the holding costs.
Offset Account
An Offset Account is essentially an everyday transactional account so you can use it for day-to-day expenses, very easy to deposit salary and withdraw money from compared to Redraw Facility. The Offset Account is linked to your home loan.
Basically, the money held in the Offset Account “offsets” the amount owing in your home loan. So, the interest payable is only calculated on the (Balance of your home loan outstanding minus the Balance in your Offset Account). Interest is calculated daily, so the more money in Offset Account, the less interest you pay.
Many lenders offer a 100% offset account as a feature with SVR (Standard Variable home loans). Monthly or annual fees may be higher for some lenders so you may need a minimum balance to realise the benefits. Repayments are made to the home loan account from the 100% Offset Account. Most lenders don’t allow 100% Offset Accounts for Fixed rate home loans.
It is recommended that you seek independent financial advice before borrowing money for an investment strategy.
If you have an investment property with a tax-deductible investment loan:
Problem: If you make extra repayments into the home loan account and then redraw them at a later date, then that portion of the loan may no longer be tax deductible. The tax office assesses the purpose of the funds you redraw from the loan whether that portion of the loan is tax deductible.
Solution: If you make your extra repayments into an Offset Account instead of the home loan account then this problem may be avoided.
Another benefit in using Offset Account is if you make lots of extra repayments into the Offset Account of your home loan, then decide to turn your home into an investment property, you may still maximise your Negative Gearing benefits because you made your extra repayments into the Offset Account for your home loan instead.
Investment Property Expenses to consider:
- Landlord insurance: This may include building insurance, landlord contents insurance and property owner liability insurance.
- Strata/Owner Corporation feesfor building with multiple units: This fee generally includes building insurance, common area administration and maintenance costs as well as sinking fund. Occasionally, special levies might be raised for building works that owners will be liable to pay.
- Utilities: Including water service charge, NBN connection for new homes.
- Council rates: Including council waste disposal and park charge.
- Ongoing maintenance and renovation costs: Need to budget these costs to keep the property in a good, rentable condition.
- Real estate property management fee: This fee applies if you use a real estate property manager to manage your property (organise new tenants, conduct inspections and look after tenant/property issues during rental period).
- Rent shortfall: This should be budgeted for in case ongoing loan repayments & property costs are greater than the rental income.
- Vacant tenancy: This contingency should be prepared for in case of extended period where no tenants lease the investment property.
While maintenance on a property is tax deductible, anything that aesthetically improves the property, such as paint or new fittings etc, may not be considered maintenance and so, not tax deductible.
Let our brokers discuss and answer any questions about investment loans and help get you on the right track on your investment journey. There are many types of loan that you can choose from to suit your financial objectives and situation, please click here or click Loan Types on our menu.