If you’re looking for a stable and secure investment, property is a solid option. Far less volatile than other investment strategies, an investment property has the potential to deliver consistent rental returns for years to come. While you may start out with a single property, careful consideration and management of your investments could see you grow this to a full and profitable portfolio with the help of a broker.
When purchasing an investment property, you need to think tactically about where you will buy and the type of person who generally resides in this area. Doing your research and having a clear understanding of the market and the areas where property is most likely to increase in value is essential. When considering your budget and return on investment, it’s not just about your rental returns, you need to factor in ongoing costs also.
If you earn less from an investment property than it’s costing you, you’re said to be negatively geared. The motivation to be negatively geared is that it reduces your taxable income and you accept a short-term loss in the hope of a capital gain later.
The cost of having a professional manage your rental property is between seven and ten per cent of your total rental income each week. So, for a property with an average rental return of $550 per week, you would need to pay the agent between $38.50 and $55 per week, which amounts to between $2,002 and $2,860 per year. If you compare this to the time commitment and potential costs you could face if you were to represent yourself at the tribunal, this weekly management fee is marginal.
Unlike a home loan, costs associated with an investment loan are tax deductible (eg interest, repairs, rates, depreciation, etc). However, be aware that any rental income will generally increase your taxable income. Another key difference is that any appreciation in the value of an investment property (capital gains) is taxed.
Along with the cost of your deposit, you need to account for the cost of building inspections, stamp duty, conveyancing fees and any legal costs.
Ongoing, as the owner of an investment property, you will need to pay council rates, water rates, insurance, body corporate fees, land tax, property management fees, repairs and maintenance costs.
February 17, 2016
The array of mortgages available helps a good finance broker to tailor a package to suit your needs. Here are just some of the options.
With a fixed-rate loan, you know exactly how much you’ll pay per fortnight or month for the fixed period of the loan (usually one to five years).
Variable rate mortgages
Repayments can change during the life of a variable-rate loan, so you may pay more or less as interest rates rise or fall. If you’re fairly sure that rates are set to fall, this is a good option.
Principal and interest mortgages
In this mortgage, you are paying the amount lent to you plus the interest.
With interest-only, you are paying just the interest on the loan – you are not paying off any of the original principal.
Split home loan (fixed and variable)
You can choose to have part of your loan at a fixed rate and the other part can be at a variable interest rate. If rates do fall, the interest will go down on the variable part of your loan, but you aren’t taking as big a risk should rates rise.
If you have a variable-rate loan and you make extra repayments, then you can withdraw that additional money when you need to (you can’t do this on fixed-rate loans).
A land loan lets you buy a block of land without the pressure to build on it as soon as possible. Land loans are usually variable interest for up to 30 years.
For buying land, building or renovating your home, a 12-month construction loan can be the best way to go. Usually, up to 90 per cent of the property value can be borrowed.
For self-employed people, a home loan can still be arranged using differing supporting documentation that shows your ability to service a loan and might include BAS and bank statements. You self-certify your income, which will need verification. You may be able to borrow up to 80 per cent of the property’s value.
This loan type allows you to convert a portion of your residential property ‘asset’ into cash or an income stream while still allowing you to continue to live in your home.
An MFAA Approved Finance Broker is much more than your average mortgage broker.
Why meet with multiple lenders when your broker can do it all for you.
Brokers have access to a wide range of lenders and products.
Secure a loan that is most suitable for you both now and into the future.