Property Investment Finance is a Key to Success
Property Investment finance is one of the most important factors when creating future wealth in property. There is no doubt that when done properly and carefully, property investment can be a viable strategy to build a retirement nest egg. But it is important to select the most appropriate finance for property investment. Small differences in the beginning can make a huge difference over the longer term. So there is a lot more to choosing the best property investment finance than just the interest rate. It is important to choose a specialist property investment loan that is tailored to your requirements. Yet, it must also offer flexibility for the future.
How to choose the best property investment finance
If you are ready to take the plunge into property investment, getting finances sorted is the first step. If you have found an ideal purchase, there is no time to delay. However, never take short cuts with finance.
For many people, it seems logical to go to their current bank to enquire about real estate investment finance rates. But there is a lot more to it than just the interest rate. For example, does your existing bank specialise in home loans, or investor loans? Does your bank have competitive property investor interest rates? How will you know if your bank is offering you the best property investment finance? How would you know whether there is a better deal available elsewhere?
Choose your mortgage broker wisely
The surest way to have access to the best loans available is to ask the best finance broker Brisbane has around. Wendy de Graaf has over 12 years’ experience as a home loan broker in Brisbane. So she knows how to find a property investment finance package to suit your needs. Wendy has a broad network of property investment lending institutions and maintains good relationships with each of them. Wendy possesses an in depth knowledge of the best offers available. It is important to know, when it comes to investment loans, the “big banks” are not always the best choice. These days, there are many options to choose from. And it certainly pays to understand all the options and various terms and conditions. The best thing is that Wendy works for you and strives to find the best way to meet your requirements. Whatever your circumstances.
Are you ready to invest in real estate?
There is no doubt that becoming a property investor is a big step to take. But when it comes to securing your future wealth and retirement, it has proven to be a good option for many. Here are some of Wendy’s tips to invest in property with the minimum possibly risk:
LVR – Loan to Value Ratio
Loan to Value ratio is a concept that is important to calculate for your personal circumstances. It is a bit like your very own risk indicator, and the level of risk that you are prepared to take. Measured simply, LVR is a ratio of the size of the loan divided by the value of the property. If you have saved a deposit of 10% of the value of the property, then you need to borrow the other 90% of the funds to buy the property. This means that you have an approximate LVR of 90%. The more cash reserve you have in the beginning means you can reduce the LVR. The lower your LVR, the more equity that you actually own in the property portfolio, which is preferable. So, as a general rule of thumb, the lower the LVR number, the less risk you (and the bank) carry.
Most people have heard of negative gearing, and it has been one of the major attractions for property investment. Negative gearing is a legal way to reduce your taxable income earned from other means, like working in a job. The costs of maintaining a rental property are often higher than the income from rent. The government recognises that property investment would not be sustainable because everyone would be making a loss. And the government also knows it probably can’t afford to house all the people who rent in Australia. So, they allow these losses from a rental property to be used to reduce a person’s tax. However, it is important to understand negative gearing in great details before you invest in property. As a property-wise accountant (who owns property themselves) for advice.
When you own an investment property, there can be significant tax incentives in the form of depreciation. Depreciation is the reduction in value of the building (after a certain date) and fixtures, fittings and appliances. The best way to calculate the depreciation on an investment property is to hire the services of a quantity surveyor. A quantity surveyor will calculate all of the components within an investment property that contribute to a depreciation schedule. Each of the items on the depreciation schedule can be monitored over several years of ownership of your investment property. They contribute to the negative gearing on the property. The depreciation schedule is provided to your property-wise accountant for completion of a property investors tax return.
Where to buy an investment property
Without a doubt, there is a lot of research involved before becoming involved in investing in property. One of the biggest considerations is the best location to buy property. Always consider locations with intrinsic demand, such as public transport, shops, schools and employment centres. Your property must be attractive to rent, and in demand, so that you will not have long periods of vacancy.
Beware of potentially ‘risky’ areas. For example, in the past 10 years, mining towns have been in demand, promising wonderful returns. Whilst there are many examples of big gains, there are also many examples of enormous losses. Here are a couple of resources to explain this kind of scenario:
This is an old link, but has some very good messages: https://www.yourinvestmentpropertymag.com.au/property-tips/how-investors-really-get-screwed-in-mining-towns-145163.aspx
This link is more recent, and describes significant changes: https://www.yourinvestmentpropertymag.com.au/news/highest-rental-yields-seen-in-mining-towns-256840.aspx
What type of investment property
These are some of the age old questions and rules of thumb when it comes to property investment. The advice that Wendy provides when starting out is that investors stick to more conventional property to reduce risk and avoid unknown issues. Conventional property types are single occupancy dwellings such as houses and apartments. When you choose an investment property that meets the common guidelines for approval of finance, the risk is generally lower and your chances of securing attractive finance terms is greater. Whilst it may seem attractive to achieve higher rental returns from high density dwellings such as student accommodation, these may be subject to restricted finance terms. Requirements and regulations are greater and costs and risks are higher with the more ‘commercial’ types of properties.
Those wise, old adages like: “If it sounds too good to be true then it probably is” or “Things will come to you when the time is right” are not bad guidelines to keep in mind!
The best advice anyone can give a new property investor is to only buy within your means. Also make sure that you check for pre-approval for property investment finance before you sign any contract!