Investment property Loan: Making real estate investment easy

An investment property is real estate purchased to generate income through rental payments or benefit from potential appreciation in value. Property investment offers numerous advantages, such as a steady stream of passive income and the opportunity for long-term capital growth. Real estate investments can also diversify an investment portfolio, reducing overall risk.

Additionally, property ownership can offer tax benefits, such as deductions for mortgage interest, property taxes, and depreciation. By carefully selecting and managing an investment property, you can build substantial wealth and secure financial stability for the future.

Using the equity in your home to purchase an investment property is a strategic way to finance your investment without needing a large cash deposit. Equity is the difference between your home's market value and the remaining balance on your mortgage.

You can access this equity through options such as a home equity loan, a home equity line of credit (HELOC), or refinancing your current mortgage to a higher amount. These funds can then be used as a down payment for your investment property. This approach allows you to leverage your existing property to grow your investment portfolio without significant upfront cash.

When choosing an investment property, several key factors should be considered to ensure a profitable investment. Location is paramount; properties in desirable areas with access to amenities, good schools, and transportation tend to attract more tenants and appreciate value.

Market research is crucial to understand trends and future growth potential. The property's condition affects maintenance costs and rental appeal, so consider well-maintained properties or requiring minimal repairs. Evaluate the potential rental yield and compare it with similar properties. Additionally, consider the long-term investment potential and exit strategy to maximise returns on your investment.

Negative gearing is a financial strategy where the costs of owning and managing an investment property exceed the rental income it generates, resulting in a net loss. This loss can be used to offset other income, thereby reducing your overall tax liability. The primary benefit of negative gearing is the potential for tax savings, which can improve cash flow.

Additionally, over time, the property may appreciate in value, providing capital gains that outweigh the initial losses. Negative gearing can make property investment more affordable in the short term while allowing investors to build wealth through long-term capital growth.

Typically, you’ll need at least a 20% deposit (an 80% loan-to-value ratio (LVR)) for an investor home loan if you want to avoid paying lenders mortgage insurance (LMI).. LMI is an insurance policy that protects the lender if the borrower cannot repay their home loan. Generally, borrowers with at least 20% deposits are considered less likely to default on their loans, which is why LMI is only payable when your deposit is less than 20%. The cost of LMI is calculated as a percentage of the loan amount and can differ based on the type of loan (owner occupier or investor), the lender, and the LMI provider you go through.

It is possible to purchase an investment property with no deposit by utilizing a guarantor loan or leveraging the equity in your existing property. A guarantor loan involves a third party, usually a family member, using their property as security for your loan, eliminating the need for a cash deposit.

Alternatively, if you have significant equity in your current home, you can use this equity to secure the investment property loan. These methods require careful planning and consideration of the risks involved, such as the impact on the guarantor and the potential for increased financial obligations. At ZedPlus, we ensure you get personalized assistance to explore these options and choose the most effective strategy for your needs.

Owning an investment property offers several tax benefits that can enhance your overall investment returns. Key benefits include deductions for mortgage interest, property management fees, maintenance and repair costs, insurance premiums, and depreciation of the property's structure and assets. Negative gearing allows you to offset property losses against other income, reducing your taxable income.

Additionally, you may be eligible for capital gains tax (CGT) discounts when selling the property if held for more than a year. It's important to maintain accurate records of all expenses and consult with a tax professional to maximize your tax benefits and ensure compliance. At ZedPlus our expert tax accountants provide guidance to help you navigate these tax advantages and optimise your investment returns.