As a builder, you understand property construction inside and out. But when it comes to buying an investment property, the application process can feel like foreign territory. Investment loan approval involves different criteria compared to owner-occupier home loans, and understanding these requirements is crucial for your property investment strategy.
Understanding Investment Loan Options
When you're looking to invest in real estate, Finance & Mortgage Brokers can access Investment Loan options from banks and lenders across Australia. Unlike standard home loans, investment property loans are assessed based on the property's rental yield potential and your overall borrowing capacity.
Investment loan options typically include:
• Variable interest rate loans that fluctuate with market conditions
• Fixed interest rate loans offering rate certainty for a set period
• Interest-only repayment options to maximise cash flow
• Principal and interest loans for long-term wealth building
Key Factors in Investment Loan Approval
Lenders evaluate several factors when assessing your investment loan application:
Loan to Value Ratio (LVR)
Most lenders require a lower LVR for investment properties, typically around 80%. This means you'll need at least 20% deposit plus costs like stamp duty and lenders mortgage insurance (LMI) if your LVR exceeds 80%.
Rental Income Assessment
Lenders usually count 70-80% of expected rental income when calculating your borrowing capacity. Research property thoroughly to provide realistic rental yield projections for your chosen town house, apartment, or stand alone dwelling.
Your Financial Position
Your employment history as a builder, existing debts, and bank statements will be scrutinised. Having consistent income records helps demonstrate your ability to service the loan amount.
The Investment Property Application Process
Applying for an investment loan involves a streamlined application process when you work with experienced mortgage brokers:
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Property Research Phase
Before buying a rental property, analyse the property market in your target area. Consider factors like vacancy rates, capital growth potential, and rental demand. -
Documentation Preparation
Gather recent bank statements, tax returns, employment verification, and property details. For builders, showcasing stable income from your trade work is particularly important. -
Loan Structure Planning
Decide whether you want your first investment property loan structured for negative gearing benefits or positive cash flow. This affects your property investment strategy and loan features.
Interest Rates and Investment Loan Features
Investment Loan Interest Rate structures differ from owner-occupier loans. While the interest rate may be slightly higher, various property investment loan features can offset costs:
• Interest rate discounts for professional packages
• Offset accounts to reduce interest charges
• Redraw facilities for accessing extra repayments
• No ongoing fees for established borrowers
Building Your Investment Property Portfolio
Once you've secured your first investment property, building an investment property portfolio becomes more achievable. Lenders often view subsequent purchases favourably when you demonstrate successful property management and consistent rental income.
For builders, your industry knowledge provides advantages in identifying renovation opportunities and understanding true property values. This expertise can support applications for higher loan amounts or better lending terms.
Calculating Investment Loan Repayments
Calculating investment loan repayments involves considering both the loan servicing costs and potential tax benefits. Interest payments on investment properties are generally tax-deductible, making negative gearing strategies attractive for many property investors.
Work with your accountant to model different scenarios and understand how rental income, expenses, and tax implications affect your overall investment returns.
Choosing the Right Property Type
Whether you're considering a town house, apartment, or stand alone dwelling, each property type offers different investment characteristics:
• Apartments: Often lower entry costs but may have higher body corporate fees
• Town houses: Balance between affordability and land content
• Stand alone dwellings: Typically stronger capital growth but higher purchase prices
Your choice should align with your investment goals, available deposit, and target rental market.
Securing investment loan approval requires preparation, documentation, and understanding of how lenders assess rental property loans. As a builder, your industry expertise gives you valuable insights into property selection and renovation potential.
Call one of our team or book an appointment at a time that works for you to discuss your investment loan options and start building your property portfolio.
