As a tradie, you've probably thought about buying an investment property to build wealth outside of your tools and skills. With the property market offering solid opportunities for long-term growth, understanding investment loan options can help you make informed decisions about your financial future.
What is an Investment Property Loan?
An investment property loan is specifically designed for buying a rental property rather than your primary residence. Whether you're looking at a town house, apartment, or stand alone dwelling, these loans work differently from standard home loans and come with their own set of rules and benefits.
When you're buying an investment property, lenders assess your borrowing capacity differently. They'll look at your existing income, expenses, and the potential rental yield from the property you're planning to purchase. This assessment helps determine your loan amount and the terms you'll be offered.
Types of Investment Loan Interest Rates
You'll have two main options when it comes to interest rates:
• Variable interest rate - This fluctuates with market conditions and can go up or down over time
• Fixed interest rate - Locked in for a set period, providing certainty for calculating investment loan repayments
Many investors choose variable rates to take advantage of interest rate discounts that lenders often provide. However, fixed rates can help with budgeting and planning, especially when you're starting your first investment property journey.
Key Factors That Affect Your Investment Loan Application
Loan to Value Ratio (LVR)
This is the percentage of the property's value you're borrowing. Most lenders prefer an LVR of 80% or less for investment properties. If you're borrowing more than 80%, you'll likely need to pay lenders mortgage insurance (LMI).
Rental Yield
This measures the annual rental income as a percentage of the property's purchase price. Higher rental yields can strengthen your investment loan application by showing the property will generate solid income.
Your Financial Position
Lenders will review your bank statements, income records, and existing debts. As a tradie, having consistent income records and maintaining healthy finances will support your application process.
Ready to get started?
Book a chat with a Finance & Mortgage Brokers at Tradie Home Loans today.
Understanding Negative Gearing
Negative gearing occurs when your rental income is less than the costs of owning the investment property, including loan repayments, maintenance, and other expenses. While this might sound concerning, it can provide tax benefits as you may be able to claim the loss against your other income.
This property investment strategy has been popular among Australian investors, but it's important to understand how it fits into your overall financial situation before making decisions.
Research Property Options Thoroughly
When you're ready to invest in real estate, spend time researching different areas and property types. Consider factors like:
• Population growth in the area
• Employment opportunities nearby
• Transport links and amenities
• Potential for capital growth
• Local rental demand
Building an investment property portfolio often starts with one well-researched purchase that provides a foundation for future investments.
Additional Costs to Consider
Beyond the deposit and loan repayments, factor in these expenses:
• Stamp duty - This varies by state and can be significant
• Legal fees for property purchase
• Building and pest inspections
• Property management fees if you use an agent
• Insurance and maintenance costs
Working with Investment Loan Specialists
Accessing investment loan options from banks and lenders across Australia can be overwhelming. Different lenders offer various investment property loan features, rates, and terms. Some lenders also provide streamlined application processes for investors with strong financial positions.
A mortgage broker who understands the trades industry can help you compare options and find lenders who appreciate the stable income that many tradies enjoy. They can also help identify which lenders offer the most suitable investment loan options for your specific situation.
Making Your Investment Loan Application Strong
To improve your chances of approval:
• Maintain detailed financial records
• Reduce existing debts where possible
• Save a larger deposit to improve your LVR
• Choose properties with strong rental potential
• Be realistic about your borrowing capacity
The application process involves providing documentation about your income, expenses, assets, and the property you want to purchase. Having everything organised beforehand can help move things along more smoothly.
Investing in property can be a valuable addition to your wealth-building strategy as a tradie. With the right loan structure and property choice, you can start building long-term wealth through real estate while continuing to grow your trade business.
Call one of our team or book an appointment at a time that works for you to discuss your investment property goals and explore loan options that suit your situation.
