Investing in property is a popular form of wealth management in Australia. Many investors are attracted by the tax advantages of negative gearing, and securing the right kind of investment property home loan can help to maximise your tax deduction. Check out the available investment property home loans on this page.
By Yvonne Taylor | Updated 18th March 2020
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It is a type of loan used by purchasers of an investment property if they cannot afford to buy the property without loan finance. An investment property is usually purchased with the intention of renting the property to someone else, to create rental income and/or to realise a capital gain as property values increase. Investment property home loans are subject to conditions which are different from the conditions on loans offered to owner-occupiers.
Investment property home loans typically have:
An investment property can be positively geared or negatively geared.
If it is positively geared, the property’s rental income is greater than the total cost of owning and maintaining it. The property owner must pay tax on the net rental income (the net profit) after deducting the cost of owning and maintaining the property.
If it is negatively geared, the property’s rental income is lower than the total cost of owning and maintaining it. The property owner effectively makes a loss every year on owning and renting out the property, but the loss can be used as a tax deduction against the property owner’s other income, such as income from employment, so that less tax is paid. The investor expects to make a capital gain when the property value increases.
The types of cost that can be offset against rental income as costs of owning and maintaining the property include:
In recent times the Australian Prudential Regulation Authority (APRA) has insisted that lenders must reduce the growth rate in the number of investment property loans they make. As a result, many lenders have changed the loan-to-valuation ratio (LVR) they require to 80% or less. What this means is that if you are buying a property which the lender values at, say, $500,000, you will need a deposit of at least $100,000 (20% of the property’s value). If you do not have a 20% deposit you may have to pay a Lenders’ Mortgage Insurance (LMI) premium. LMI protects the lender against losses if you default on loan repayments and it cannot recover 100% of the amount you owe by repossessing and selling the property.
Young investors who do not have a 20% deposit could consider asking their parents to act as loan guarantors by allowing a part of the loan to be secured against a property their parents either own outright or have a substantial equity in.
Investment property home loans have the same types of interest rates available as residential property home loans:
Other fees you may have to pay include:
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