As a concreter, you've probably spent years building solid foundations for others. Now it's time to think about building your own financial foundation through property investment. Understanding investment loan options from banks and lenders across Australia can help you make informed decisions about buying an investment property.
What Are Investment Property Loans?
Investment property loans are specifically designed for buying a rental property rather than your home to live in. Whether you're looking at a town house, apartment, or stand alone dwelling, these loans work differently from standard home loans. The interest rate is typically higher, and lenders assess your application differently because they view investment properties as higher risk.
When you invest in real estate, you're essentially becoming a landlord. Your rental property loan helps you purchase the property, and the rental income from tenants helps cover your loan repayments and other costs.
Variable Interest Rates Explained
A variable interest rate means your rate can change over time based on market conditions and your lender's decisions. Unlike a fixed interest rate that stays the same for a set period, variable rates fluctuate.
Here's what this means for your investment:
• Your repayments can go up or down
• You might benefit when rates drop
• You need to budget for potential increases
• Most variable loans offer additional features like offset accounts
Many concreters prefer variable rates because they often come with more flexibility and features that can help manage your investment property portfolio over time.
How Offset Accounts Work
An offset account is a transaction account linked to your investment loan. The balance in this account reduces the loan amount on which you pay interest. For example, if you have a $400,000 loan amount and $50,000 in your offset account, you only pay interest on $350,000.
For investment properties, offset accounts can be particularly valuable:
• Keep your rental income in the offset to reduce interest
• Maintain separate records for tax purposes
• Access your money when you need it for property maintenance or improvements
• Reduce the total interest paid over the life of the loan
Ready to get started?
Book a chat with a Finance & Mortgage Brokers at Tradie Home Loans today.
The Application Process for Investment Loans
Applying for a investment loan requires more documentation than a standard home loan. Lenders want to see:
• Bank statements showing your financial position
• Evidence of your borrowing capacity
• Details about the property you want to purchase
• Your investment property strategy
• Proof of rental income potential
The streamlined application process varies between lenders, but generally takes longer than home loan applications. Research property values in your target area before starting your investment loan application to understand what loan to value ratio (LVR) you'll need.
Understanding LVR and LMI
Your loan to value ratio compares your loan amount to the property's value. Most lenders allow up to 80% LVR for investment properties without requiring lenders mortgage insurance (LMI). If you borrow more than 80%, you'll likely need to pay LMI, which protects the lender if you can't repay the loan.
For your first investment property, aiming for 80% LVR or less can save you thousands in LMI premiums.
Calculating Investment Loan Repayments
Calculating investment loan repayments involves several factors:
• The Investment Loan Interest Rate
• Your loan amount
• The loan term
• Whether you choose principal and interest or interest-only repayments
Many investors start with interest-only repayments to maximise their negative gearing benefits, then switch to principal and interest later.
Property Investment Strategy Considerations
When developing your property investment strategy, consider:
• Rental yield in different areas
• Property market conditions
• Your long-term financial goals
• Tax implications including negative gearing
• Additional costs like stamp duty and ongoing maintenance
As a concreter, you might have advantages in the property market due to your understanding of construction quality and potential renovation opportunities.
Investment Loan Interest Rate Discounts
Many lenders offer interest rate discounts based on factors like:
• Your loan amount
• Your relationship with the lender
• Your deposit size
• Your profession (some lenders offer tradie-specific deals)
Property investment loan features can vary significantly between lenders, so comparing options is crucial for finding the right fit for your situation.
Building an investment property portfolio takes time and careful planning. Starting with one well-researched property and understanding how your loan works sets you up for future success. Remember, buying a rental property is a long-term commitment that requires ongoing management and financial planning.
Call one of our team or book an appointment at a time that works for you to discuss your investment loan options and find the right solution for your property investment goals.
