As a tradie, you've worked hard to build your skills and establish your business. Now you're thinking about your next move – buying an investment property to secure your financial future. Variable rate investment loans can be a smart choice, but understanding the loan terms is crucial for making informed decisions about your property investment strategy.
What Makes Variable Investment Loans Different
When you're buying a rental property, variable interest rates fluctuate with market conditions. Unlike fixed interest rates that stay the same for a set period, variable rates can go up or down based on the Reserve Bank's decisions and lender policies. This flexibility can work in your favour when rates drop, potentially reducing your loan repayments.
Variable rate loans often come with features that fixed rates don't offer, such as:
• Offset accounts to reduce interest charges
• Redraw facilities for accessing extra payments
• The ability to make unlimited additional repayments
• Options to split your loan between variable and fixed portions
Understanding Your Borrowing Capacity
When applying for an investment loan, lenders assess your borrowing capacity differently than for owner-occupied properties. They'll examine your income, existing debts, and the potential rental yield from your investment property. As a tradie, your income might fluctuate seasonally, so having solid bank statements and tax returns is essential for your investment loan application.
Lenders typically allow you to borrow up to 80% of the property value without lenders mortgage insurance (LMI). If you need a higher loan to value ratio (LVR), you'll need to factor LMI costs into your property investment budget. This insurance protects the lender if you can't meet your repayments.
Key Loan Terms You Need to Know
The application process involves understanding several important terms that affect your loan amount and repayments. Interest rate discounts are often available for investment loans, particularly if you have a strong financial position or existing relationship with the lender.
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When calculating investment loan repayments, remember that rental income can help offset your mortgage costs. However, don't rely solely on rental income to service the loan – lenders typically only count 70-80% of expected rental income in their assessments.
Negative gearing is another consideration for your investment loan options. This occurs when your rental income is less than your loan repayments and property expenses, creating a tax deduction. Many property investors use this strategy as part of their overall investment approach.
Choosing the Right Property Type
Whether you're considering a townhouse, apartment, or stand-alone dwelling, each property type has different lending criteria and potential returns. Apartments might have lower purchase prices but potentially lower growth rates. Stand-alone dwellings typically cost more upfront but may offer stronger capital growth potential.
Research property markets thoroughly before committing to any investment. Look at rental yields in different areas, vacancy rates, and growth projections. Your first investment property sets the foundation for your investment property portfolio, so take time to understand the local property market dynamics.
Additional Costs to Consider
Stamp duty varies between states and can significantly impact your initial investment costs. Some states offer concessions for first-time investors, while others have higher rates for investment properties. Factor these costs into your loan amount calculations or ensure you have sufficient savings to cover them separately.
Ongoing costs include property management fees, maintenance, insurance, and council rates. These expenses affect your overall return on investment and should influence your property selection and financing decisions.
Working with Investment Loan Specialists
Access investment loan options from banks and lenders across Australia through experienced brokers who understand the trades industry. Different lenders have varying criteria for investment loans, and a streamlined application process can save you time and potentially secure more favourable terms.
Some lenders offer specific programs for tradies, recognising the unique aspects of your income and business structure. These programs might offer more flexible assessment criteria or additional features suited to your needs.
Invest in real estate with confidence by understanding your options and working with professionals who can guide you through the process. Building wealth through property investment takes time and planning, but with the right loan structure and property choice, it can provide excellent long-term returns for you and your family.
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 today.
