Understanding Investment Loans for New Property Purchases

Getting Started with Investment Property Finance

As a plumber, you've built a solid trade business and now you're thinking about your next financial move. Buying an investment property can be a smart way to build wealth, but understanding investment loan options is crucial before you dive in.

When you're ready to invest in real estate, you'll need to access investment loan options from banks and lenders across Australia. Unlike your home loan, investment property loans work differently and typically come with higher interest rates and stricter lending criteria.

Types of Investment Properties to Consider

Before applying for an investment loan, you'll need to research property options that suit your budget and investment goals:

• Stand alone dwelling - Often provides strong rental yield and capital growth potential
• Town house - Can offer a balance between affordability and rental appeal
• Apartment - Usually requires lower initial investment but consider strata fees

Each property type affects your borrowing capacity differently, so it's worth discussing your options with a mortgage broker who understands the trades industry.

Understanding Investment Loan Features

Investment property loans come with specific features you should know about:

Interest Rate Options:
• Variable interest rate - fluctuates with market conditions
• Fixed interest rate - locked in for a set period, providing payment certainty

Many lenders offer interest rate discounts for investment loans, especially if you have a strong financial position or existing relationship with them.

Loan to Value Ratio (LVR):
Most lenders require a lower LVR for investment properties - typically 80% maximum to avoid lenders mortgage insurance (LMI). If you borrow above 80%, you'll need to pay LMI, which increases your loan amount and overall costs.

The Application Process Explained

The investment loan application process requires thorough preparation. Here's what you'll typically need:

1. Financial Documentation:
   • Bank statements from the last three to six months
   • Tax returns and financial statements for your plumbing business
   • Proof of existing assets and liabilities

2. Property Information:
   • Purchase contract or property details
   • Rental appraisal showing expected rental yield
   • Building and pest inspection reports

3. Personal Details:
   • Employment history and income verification
   • Details of your current property investment portfolio (if applicable)

Many brokers now offer a streamlined application process, making it more efficient for busy tradies to get their applications processed.

Calculating Your Investment Loan Repayments

Understanding how to calculate investment loan repayments helps you budget effectively. The investment loan interest rate directly impacts your repayments, but remember that rental income from your buying a rental property venture will offset some costs.

Consider these factors when calculating affordability:
• Weekly rental income potential
• Property management fees
• Council rates and insurance
• Maintenance and repair costs
• Stamp duty (varies by state)

Property Investment Strategy Considerations

Negative Gearing Benefits:
When your rental property expenses exceed rental income, you can claim this loss against your other income, potentially reducing your tax bill. This property investment strategy is particularly relevant for tradies in higher tax brackets.

Building Your Investment Property Portfolio:
Your first investment property doesn't have to be your last. Many successful property investors start with one rental property loan and gradually build a portfolio. The equity in your initial investment can help fund future purchases.

Choosing the Right Lender

Different lenders offer varying investment loan options, and some are more favourable to self-employed tradies than others. Some factors to compare include:

• Investment loan interest rate offerings
• Loan features and flexibility
• Serviceability calculations
• Ongoing fees and charges

Working with a broker who specialises in the trades industry means you'll access lenders who understand your income patterns and business structure.

Making Your Investment Property Decision

The property market offers opportunities, but success comes from careful planning and the right financing structure. Whether you're purchasing your first investment property or expanding an existing portfolio, having the right loan structure is fundamental.

Remember that buying an investment property is a long-term commitment. Take time to understand all aspects of your investment loan application and how it fits into your overall financial picture.

Ready to explore investment loan options for your next property purchase? Our team understands the unique needs of plumbers and other tradies when it comes to property investment financing. Call one of our team or book an appointment at a time that works for you.