Finance

Investment Property Finance in Australia

The benefit of planning from an investment finance perspective is that it allows you to consider your future financial requirements and provides you with an opportunity to select the right lender, investment loan products and structure now.

Building wealth relies on a sound financial plan and while borrowers can do the legwork on their own, it can be a time-consuming and frustrating exercise.

A financial plan goes beyond having savings set aside, to investing in assets that will provide long term growth, adequate returns and, where possible, taxation benefits along the way.

A finance broker who has the experience and knowledge about the investment loan application process and has developed good relationships with various lenders is a vitally important part of the purchasing process.

Even more important to the Australian Residential referral process is that the finance specialist has vast experience in investment property finance structures.

They can provide you with competent, comprehensive, unbiased, researched advice, tailored to your individual circumstances.

In addition, a finance professional can answer questions you may have regarding finance, either in a general sense or as they specifically relate to your situation.

It’s important to work with someone who specialises in wealth creation and protection strategies and provides a qualified, professional and friendly personal service.

It’s also extremely important to note that investors should always be upfront and honest at all times in providing information. This will allow the broker to do their job competently and ultimately provide you with the best possible package.

Financing your Property

Investing in the right property should only come into place after all the financial and long term investment planning strategies have been put in place. It is very important to do this with a qualified finance specialist with many years of experience in the property investment field.

Most lenders offer the same range of investment finance products. There is no doubt that there are differences between the same product offered by different lenders, but choosing the wrong product will probably have a greater financial impact than the wrong lender.

When borrowers make mistakes, nine times out of ten, it is due to choosing the wrong investment loan product rather than the wrong lender.

Borrowers need to first decide which product is best for them and then decide which lender offers the best deal for that particular product, thereby comparing apples with apples.

Mortgage brokers are a vital element of the investment property mortgage lending business. They are not tied to one financial institution and it is in their best interests to secure the right deal for you.

A good broker has all the relevant market information at hand in order to provide you with an expert opinion on the various loan products available. They should also have the capacity to compare different loans relevant to your particular situation.

This is vitally important because it allows you to compare the features, fees, repayment schedules and interest rates of many different loan products at the same time, saving you countless hours of research.

Where to begin?

Australian Residential’s affiliated mortgage brokers specialise in property investment finance.

They offer a service to borrowers which involves matching a borrower’s needs with a loan from a panel of lenders represented by the broker.

As a part of our step by step process, the broker will conduct an interview with the borrower to get all the relevant information, both in terms of the financial details of the proposed loan, as well as the lifestyle and risk preferences of the borrower. They will then use a combination of their own product knowledge and dedicated software to find the loan that is the best match for the borrower.

Deciding what you want

Because there are so many factors differentiating the many invesment loans for rental property out there, it’s a really good idea to consider and list your needs before you set out.

Questions that every lender will ask you are :-

• How much do you need to borrow ?
• What will the loan represent as a proportion of the property value (i.e. the LVR)?
• Are you borrowing for investment or personal purposes?
• How long do you intend borrowing for?
• Are joint incomes required to meet repayments?
• Which State/Territory is the property located?

You may also have special needs – buying the property through a unit trust or company structure, or you could be buying land with a view to building a house.

Loan Functionality

Investors should always think about flexibility with their investment finance. Would you like to vary the size of the loan without lots of paperwork? Would you like to vary your repayments? or do you simply want a no frills loan with the best available rate? Ultimately, the loan structure you choose will determine the flexibility you have.

So, let’s look at loan structures. Loans can be :–

• Standard Amortising;
• Line of Credit (Equity)
• Amortising Equity; or
• Standard Interest Only

One way of describing the structure of the loan is the repayment schedule. The repayment schedule is defined by the term of the loan (say 25 years) and the types of payments you make – interest only, or principal plus interest.

A traditional principal and interest loan for the purpose of buying the property (and nothing but the property), is known as a Standard Amortising Loan.
More and more borrowers are taking advantage of the equity in their property by using it as a security to borrow for other purposes.

Loans that allow you to use a mortgage for purposes other than investing in property fall into the “Line of Credit” category. These loans dont have a strict repayment schedule therefore, work best for borrowers who have plenty of self discipline.

Amortising Equity Loans let you borrow against the equity you have built up against your home. However, each time you change the loan amount, your repayment schedule is reset. You pay principal and interest repayments on the basis of your specified terms. These loans are good for borrowers who have built up equity in their home but like (or need) the repayment discipline that an amortising loan provides.

Most residential property investors have limited capital and are looking for long term capital growth to build up equity in their investment property, with that in mind an interest only loan is quite often the product of choice.

Investors typically use interest only loans to maximise tax deductibility over the life of the loan.

The final decision

The problem with assessing a range of opportunities is simply dealing with the large number of variables. This is where understanding your own needs and working with a specialist finance broker comes in handy.

Although each of us has unique financial needs, it’s a simple fact that some products on the market have more features than others. If you find a loan that has a mountain of features, chances are you won’t be the only person that suits. Similarly, some loans are cheaper than others. If we combine these two ideals and hunt down all the loans with the most features that are amongst the cheapest, we find the best ‘value for money’ products.

The advantage of using a finance broker from our panel of affiliated investment property specialists is that you don‘t have to do all the leg work yourself.

How do I get started?

Contact us for a free information pack, or to arrange an obligation free consultation.