An investment property loan allows you to buy a house, unit/apartment or townhouse that you can rent out to tenants. It can be an excellent way to build your future wealth. It ticks all the investment boxes:
- It can generate income for you (the rent you charge your tenants). This can help to make your investment property loan repayments much easier to afford. It can also help you to borrow more so you can buy a higher value investment property.
- It can allow you to achieve capital growth. Property prices in Australia have a long-term growth trend, particularly those in major capital cities like Sydney, Melbourne and Brisbane.
- It can help you to legally minimise your annual taxable income. On your tax return, you can legally offset any investment property expenses against the rental income you generate. This reduces your taxable income and therefore the amount of tax you need to pay. According to the Australian Taxation Office, you can immediately claim management and maintenance costs, including the interest on your investment property loan and any repairs or maintenance that you need to do. Other expenses like depreciation and capital improvements to the property (e.g. renovations) can be deducted over several years.
What is gearing?
You might have heard of the term ‘gearing’ in relation to investment properties. An investment property can be negatively or positively geared. A negatively geared property has costs that outweigh the rental revenue it generates. It can still be an effective investment strategy once the tax benefits and long-term capital growth are considered. The rental revenue on a positively geared propert, on the other hand, exceeds its expenses.
Would I qualify for an investment property loan?
As with any loan, your chances of an investment property loan approval will be higher if you (and your partner) have a good credit history, enough deposit and a stable, full-time job.
Lenders have stricter criteria for approving investment property loans because they are perceived as being higher risk. For example, there is a risk that you may not always be able to find tenants. But that risk can be reduced if you choose an investment property in a highly desirable location. There’s an old saying that there’s three important factors in real estate: location, location and location. There’s a lot of truth in that statement!
At Maxima Mortgage, we have a lot of experience in helping clients to build their wealth through investment properties.
Contact us for a for a free, no-obligation initial consultation.